How to Create a Prospectus for an IPO
Original post by Victoria Duff of Demand Media
One way for an entrepreneur to obtain funding to grow her company is to do an initial public offering (IPO). Generally, these are done after the company has gone through at least one round of private funding through a Reg. D offering. Companies often undertake an IPO, or S-1 offering, because of pressure from the private shareholders who want liquidity for their shares and a chance to make a profit. If you are considering an IPO, the best advice on how to create a prospectus for your IPO is to hire an attorney and an investment bank. If you do it yourself, you may save money -- but have an experienced Securities and Exchange Commission (SEC) attorney review it.
Seek advice from the regulators. Contact the SEC's Office of Small Business at 202-551-3460, and tell them you are considering an IPO and want to ask questions about Form S-1.
Study other offering documents, which can be found in the SEC's EDGAR database. Your Form S-1 is the format required for a prospectus. A good example of a prospectus is Google's offering document.
Use the Form S-1 available on the SEC website as your template. Provide the information in each section in a concise, truthful and business-like manner. Avoid projections of success and hyperbole.
Include financial statements prepared by an accountant familiar with public company reporting practices. The most important part of the financial statements is the notes, which will be scrutinized by SEC analysts, so you don't want an amateur preparing them for you.
Present your finished prospectus to an SEC attorney for review. It is vital that this document be complete, the disclosures comprehensive and the information presented accurate and free of wishful thinking. Projections made in your prospectus can result in significant lawsuits if they don't materialize.
Tips & Warnings
- If you haven't written a prospectus before, talk to as many advisers as possible before undertaking the task. Good sources of information are the North American Securities Administrators Association (NASAA) for information on any state requirements you will have to meet in your filing process, the Service Corps of Retired Executives (SCORE) and the Small Business Administration (SBA).
- U.S. Securities and Exchange Commission: EDGAR Filer Manual (Volumes I - III)
- MSN Money: Meet the S-1
- Practicing Law Institute: An Overview of the IPO Process
- University of Delaware: SEC S-1 Form Filed by Google
- U.S. Securities and Exchange Commission: Form S-1
- MSN Money: IPO Basics
About the Author
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.