One of the main ways for a startup organization to accrue more capital for their business is to create an initial public offering (IPO). Taking your company public is a decision no board of directors should take lightly, as it involves extensive regulatory requirements, transparency obligations, and potential changes to the company’s operations and culture.
Learning from other companies helps startups understand the challenges and benefits of going public. Read on for IPO examples.
What is an Initial Public Offering?
An initial public offering (IPO) is the process that startups follow to become a publicly traded company. In an IPO, companies raise capital by selling newly issued shares to investors, allowing them to buy ownership shares in the company. It is a complex process that, without the right steps, can result in significant delays or missteps.
The road to an IPO typically looks like this:
- Create an internal IPO project management team: Your organization should put together a team of your most experienced and trusted executives to oversee the transition and evaluate the company’s finances, legal standing, and operational standards to determine if your company is ready to go public.
- Prepare for a public company board of directors: Conduct meetings with your current board and committees to assess if any changes will need to be made to meet exchange listing and Securities and Exchange Commission (SEC) requirements. These meetings should also be used to revise operating agreements and draft corporate governance policies that suit your status as a public company.
- Hire external IPO partners: Interview prospective investment banks and choose your underwriter, banker, accounting firm, audit firm, and legal counsel. These parties will help shepherd your IPO to the finish line with their expertise.
- Conduct due diligence: Comprehensive due diligence involves thorough reviews of your company at every level: legal and regulatory compliance, internal controls, material agreements, readiness, financial results, etc.
- File a registration statement with the SEC: Companies must create an S-1 registration document (also known as a prospectus) with key operational and financial information and send it to the SEC for review. If the SEC approves the document, then the company can begin to price and issue shares.
- Launch an investor roadshow: The investor roadshow is a series of meetings where a company meets with public investors to convince them to buy shares in their business.
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IPO Companies
Read on for three IPO examples.
1. Facebook
Facebook found ways to resist instigating an IPO for a long time. The company first received funding from Peter Thiel in 2004 before generating more capital from Series A-C funding rounds in 2005 and 2007.
As Facebook gained its status as a dominant social media platform, Mark Zuckerberg maintained the business as a private entity to stay mobile and run the site with more control. But federal bylaws represented a tipping point.
One notable SEC requirement is that any private organization with over 500 shareholders must adhere to the same financial disclosure standards as a public company, such as providing a more transparent look at their books and filing quarterly and yearly reports. Facebook’s attempts to eschew or change the law fell short, and they officially filed their IPO on May 18, 2012.
There was a lot of excitement about this moment. At the time, Facebook had over 500 million daily active users and was raking in over $1 billion in quarterly revenue. The company offered 421,233,615 shares for $35-38 a share, raising $16 billion through the offering, making it the third-largest U.S.-based IPO ever.
But problems arose soon after the first day. The stock price plummeted more than 40% over the next few months as IPO investors, many of whom bought their shares from Facebook employees, quickly looked to sell.
There was also criticism of the IPO’s underwriter Morgan Stanley for setting such a high price on the stock. Facebook share prices would not return to the level of the IPO until August 2013.
The company more than recovered from this debacle, but the situation shows that it’s important to recognize the unpredictability of the IPO process.
2. Google
Google was similarly patient on the matter of going public, building its business as a private company for the first six years of its existence until SEC requirements forced it to offer an IPO, which launched on August 19, 2004.
The search engine’s revenues and profits were rising in tandem, but few at the time knew how to properly value this type of asset. Google’s founders’ letter proclaimed that this was “not a conventional company,” a perspective that became more apparent by how the company handled the IPO process.
Google first pushed for a valuation that placed the per-share price between $108 and $135. The company also chose to sell those shares in a nontraditional manner known as the Dutch auction.
The gamble didn’t pay off as expected. Google eventually reduced the price range to between $85 and $95. The stock closed the first day at $100.34, showing a price increase of about 18%, but still below initial expectations.
Google was also a victim of bad timing. The company launched its IPO in the aftermath of the dot-com bubble bursting and many tech stocks struggling on the market.
But after a period of underwhelming publicity, Google ascended to become the top search engine and one of the most powerful companies in the world. In-house leadership didn’t let early stumbles affect their overall vision for the future.
3. Amazon
“Amazon.com is the leading online retailer of books” is how the company described itself in its 1997 S-1 filing while setting up its IPO. The version of the company that existed then scarcely resembles the dominant conglomerate that currently has a market cap of $1.82 trillion.
At the time of the IPO, Amazon reported 80,000 daily users and had 256 total employees. The company was founded in 1994, making the move to go public faster than many businesses. The company was growing quickly and chose to act quickly in a fertile and competitive space.
In the year prior to going public, Amazon raised its revenue from $511,000 to $15.75 million. The IPO first set share prices between $12 and $14 before increasing the price to $18 prior to market opening, placing overall company value at $300 million. Amazon’s IPO raised $54 million and lifted the market value of the company to $438 million.
It’s hard to imagine a world where Amazon isn’t a ubiquitous enterprise, but if the organization had waited longer before going public, it may have missed its optimal window for growth.
OnBoard Powers Scaling Startups
These three initial public offering examples show that the IPO process features many ups and downs, and an organization can’t account for every single variable. This makes it critical for board members to collaborate and craft a coherent strategy. OnBoard’s extensive features can help your team stay organized and get the most out of IPO prep meetings.
Finding the right board management solution for your organization should be easy. To help you make the right decision for your unique startup or scaleup, we’ve organized a free guide: Board Management Software Buyer’s Guide. Inside, we give you all the tools and resources needed to find the very best board portal.
The comprehensive blueprint for selecting a results-driven board management vendor.
Ready to upgrade your board’s effectiveness with OnBoard the board intelligence platform? Schedule a demo or request a free trial.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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