A Basic Understanding of IPOsTable of ContentsCreating IPOs……………………………………………………………… ……… ………… 2Contract ……………………………………………………..…………………………… 2Structured agreements ………………… ……. ..………………………………………… 2Subscribers ……………………………………..……………………………………… 2Securities and Exchange Commission (SEC) …………………………………………………… 2Registration statement …………………………………...……… …… ………………… 2Survey …………………………………………...………………………………… 3Prospectus ………………… …… …………………………..…………………………………… 3Red herring …………………………………………………… …… …………………… 3Road Show ………………….…………………………………………………………… 3Prices ……………… …… ……...………………………………………………………… 3IPO Allocation ……………………...…………………… …… ………………………………… 3Institutional investors …………………………………………………………………… 3Individual investors…………… …… ………...………………………………………… 4Looking for an IPO …………………….……………...…… ……………… …………………… 4Key elements ……………………………..…...………………………………………… 4Period blocking …………… …………………....………………………………………… 4Reversal …………………………...…… ……...…… …………………………………… 4General basics of IPO …………………………...…………………… …………………..……… … 5Form …………………………...………..……………………………………..…… …… 5Categories ……………………… …....………………………………………..………… 5 reasons to go public ………………… ………...………… ……………………..……… 5Internet Boom …………………………...……...………… …………………………..… ……… 6References …………………………...………………………………………….……. .………… 7A Basic Understanding of Initial Public OfferingsInitial Public Offerings (IPOs) are common ways for small businesses to grow and expand by increasing their availability of capital. The IPO began to see a surge in popularity in the late 1990s. Due to the growing popularity resulting from the dot com explosion, the term "IPO" became a household name. In order to understand how IPOs work, it is best to first know how IPOs are created. IPOs are created by underwriters. The first step in creating the IPO is to hire an investment bank and negotiate a contract. The contract will indicate the type of securities (shares or bonds), the amount of capital to be raised and the details of the subscription agreement itself. The company and the investment bank determine the structure of the contract. There are two different types of structured agreements. The first type of structured agreement is the firm commitment agreement, in which the underwriter guarantees that a certain amount of capital will be raised. This is done by purchasing the entire supply and reselling it to the public. The second type of structured agreement is the best effort agreement, in which the underwriter will sell the securities on behalf of the company but does not guarantee the amount of capital that will be raised. To protect itself during IPOs, an investment bank often forms a syndicate of underwriters. When a syndicate is formed, one leader will be responsible for the syndicate, while the others will each sell a portion of the securities issued. Once a contractual agreement is reached, the investment bank files a registration statement with the Securities and Exchange Commission (SEC) (IPO, 2005). The registration statement contains information about the offering itself as well as other information about the company, such as the company name. financial statements, management track record, any legal matters the company may be involved in, insider holdings and where the capital raised will be used within the company.