Silicon Valley Business School
Management Maneuvers—IPO
Steps in the Process of Registering Shares for Sale to U.S. Public Investors

Shares and share options in private companies are not very liquid—this means it’s virtually impossible to sell or exchange them for anything that you can use to actually buy anything. Yes, this means that they’re practically worthless. In most scenarios, you only get to sell your shares if the company goes through an IPO, or is sold—in a Cash Flow Sale or Asset Sale. As a result, investors refer to IPO and acquisitions as liquidity events and exit routes—they enable investors to convert shares to cash and get their money back out.

The IPO maneuver, for most technology companies, means raising funds by selling shares to the public, through a listing on the Nasdaq or one of the other major stock markets. Costing several million dollars, the process requires the support of an underwriter working in conjunction with legions of accountants and lawyers.

Going into the IPO process, the company should have a market leadership position and a strong pipeline of sales. At this point, the foundations for the sales team should have been built and the company should have been delivering impressive sales for some time. In a normal IPO market, the sales should be sufficient to turn a profit.

The sale of shares to the public is highly regulated by Federal law in the United States, and the Securities and Exchange Commission (SEC) monitors all the activities surrounding an IPO. Entrepreneurs considering IPO should investigate the various rules and regulations in order to avoid upsetting the SEC.