7 Factors That Determine the Success of an IPO

An IPO or Initial Public Offering is a process through which private companies convert themselves to public companies. The IPO investment essentially invites the public to invest in the company by buying its shares and becoming shareholders in it. The capital raised through this share-buying process is then used by the company to further its growth. 

The main aim of any latest IPO listing is to generate capital for that particular company through public investment. However, that isn’t the only benefit of an IPO. An IPO also helps create curiosity and interest among investors, especially if they have the potential to gain high returns on their investments. 

But hold your horses! Launching an IPO might sound like a straightforward process. However, a lot of factors go into ensuring the success of an IPO. Having a deep knowledge of the IPO process and doing a thorough review of the company’s financial health will help companies plan and have a constructive process in place to ensure the IPO is launched successfully.

Factors that Determine the Success of an IPO

Here’s a look at the top 7 factors companies should consider when launching an IPO to ensure its success.

Readiness of the Company 

No question is more important than “Is the company ready to go public” when planning to launch an IPO. To answer such a question, the company will have to first delve deep into its various aspects. This could include reviewing its financial health, the potential for business scalability and the overall stability of the country. 

Market Timing

There can be nothing worse than launching a poorly timed IPO. 

• When done at the wrong time, launching an IPO could potentially lead to numerous challenges for the company.  
• If the market conditions are unfavourable issuing an IPO during such a time will undoubtedly impact the company’s debut on the Indian stock market. 
• Going public during market volatility or while there is an overall economic downturn in the country can prove to be very detrimental to the company’s growth

This is why the market conditions need to be carefully monitored before and during the launch of the IPO. 

Regulatory Compliance

The founders must be well aware of all the legal requirements that go into the launch of an IPO. This could include:

• Adhering to the Securities and Exchange Commission (SEC) regulations 
• Being open and getting ready to disclose any financial details that might be needed
• Making sure that the company’s corporate governance practices meet the standards established by public companies 

The Right Valuation

• Setting the IPO price high might attract fewer investors or have them change their minds too at the last minute
• Setting the IPO price too low, though might attract more investors, but will raise less capital to be used in the company’s growth
• A balance between the two needs to be established so that investors aren’t discouraged and the company also ends up raising enough capital to sustain all its business needs. 

Relation with the Investors

Maintaining good investor relations is a must to launch a successful IPO. This could include:

• Decimating any important information regularly to the investors to help them make an informed decision about investing in the IPO
•  The company also needs to be responsible and ensure that all the public stocks of the company are traded fairly
• Investors appreciate when there is transparency from the company’s side on every aspect and in every latest IPO listing.

Exit Strategy and Lock-In Period

• Having a clear exit strategy in mind can help them decide many crucial situations.
• This could include the decision to whether or not to immediately sell the shares or to wait till after the IPO
• A lot of the IPOs have a lock-in period under which selling shares before a particular time, usually 6 months, is not allowed

Company’s Branding

• How popular a company is before its ipo investment launch will determine how effectively the IPO will launch
• The company needs to know how to market itself in the right manner to attract investors from the get-go. 
• With the right influence and branding can truly prove to be very successful for a company, attracting plenty of investors to the IPO.

Conclusion

No doubt going public by a private company with the help of an IPO will help the company raise funds for its development. However, to ensure that the IPO launch process is a success, the factors mentioned above need to be taken into account.