Sergey Kondratenko: What is an IPO and how can a business get involved?

To bring a company to the stock market, an initial public offering (IPO) strategy is used. This process is based on the sale of securities before they are admitted to exchange trading.

Financial technology expert Sergey Kondratenko notes that the attractiveness of IPOs for investors is expressed in the opportunity to purchase shares at a favorable price with subsequent resale at a higher price. How does the IPO process work and what lies behind its success?

Sergey Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.

Sergey Kondratenko: The main motivation of companies to IPO and the stages of going public

Sergey Kondratenko says that there are some key reasons why a company may decide to go public. If management is confident in its prospects in the market, then an IPO may be a more attractive option for shareholders than selling the company to other organizations. This path provides management with the opportunity to raise significant amounts. It is important to note that the overall valuation of the business also increases since the shares can be purchased by any interested party.

According to Sergey Kondratenko, to be listed on the stock exchange, a company must have a successful business history and also provide a transparent financial report. If everything is in order with this, then you can safely put the shares on the stock exchange step by step.

The initial stage of an IPO can last from a month to several years. During this period, the company evaluates its business. This allows you to determine the price of shares and the volume of their issue.

– It is also important to assess the level of financial and information transparency. This aspect helps to increase investor confidence and improve the company’s reputation, notes Sergey Kondratenko. – According to stock exchange trading norms, the future issuing company is required to regularly provide the public with quarterly financial reports.

According to the expert, after the results of the analysis, the company decides whether it should go into public trading. In case of a positive outcome, it moves to the next stage.

At the stage of preparation for an IPO, the entire range of work on listing shares on the stock exchange lies within the competence of the underwriter. This is usually the investment bank with which the company agrees. There are often multiple underwriters involved in the IPO process. In addition, the exchange where the shares will be placed is determined and brokers are selected.

The underwriter evaluates the company. It determines the main parameters of the upcoming IPO: how many securities to issue, their starting price, and the optimal moment to place shares on the stock exchange.

According to Sergey Kondratenko, the company, together with the underwriter, is developing an issue prospectus with detailed information about the company. The company must also clearly explain for what purposes funds are raised and in what volume. If the information about the company is approved by regulators, then the IPO date is set.

In addition, the underwriter and the company prepare a prospectus.  This is a document that contains information for investors and influences their decisions regarding the purchase of securities.

Next, according to the specialist, an active advertising campaign begins. Company representatives arrange meetings with potential investors and brokers during the Road Show in key global financial centers such as London, New York, Hong Kong, and Tokyo. As part of the Road Show, the company’s management presents investors with key indicators and information on the placement of shares. This stage usually takes two to three weeks.

The main stage of the IPO process is the Road Show, which accepts bids for shares from investors.

– Large investors are given the right to buy shares before they are placed. The underwriter, in turn, receives information about investors’ readiness to purchase shares – in quantitative and price terms. It is important to note that the underwriter also has the right to be the first to purchase shares before the IPO and resell them after the placement, comments Sergey Kondratenko.

The expert notes if a company’s IPO attracts significant interest and the demand for them is higher than supply. In this case, a decision is made on further steps. Options include increasing the share price or issuing additional shares.

The final stage, also known as listing, is the beginning of trading in securities on an exchange. If their price is acceptable for market conditions, the issuer can count on a favorable reputation on the stock market.

The main risk of an IPO is the uncertainty in the share price. Some assets may be in a drawdown state for a long time.

Such a decline, according to Sergey Kondratenko, may occur slowly, and this is a problem for investors.

Risks and aspects of participation in an IPO:

• Rejection of applications to purchase shares, most often due to demand exceeding supply by the issuer or a limited volume of shares available for sale from brokers.
• Paid participation in an offering that requires payment of a commission and a minimum amount for the purchase of shares set by the broker.
• The possibility of canceling the initial placement for various reasons: the management of the company has changed, the securities were purchased by a large fund, or the issuer violated the scope of its activities.
• High entry threshold for foreign IPOs, usually $5,000 or more.

Given the high level of risk when participating in an IPO, Sergey Kondratenko advises investors to carefully study the financial condition of the company before purchasing shares.

Sergey Kondratenko: key factors for IPO success

The expert names six fundamental factors that can influence the success of a public offering of shares:

• highly qualified management team,
• favorable financial indicators,
• a product or service with unique characteristics,
• the presence of a significant market segment for the company’s products,
• carefully developed business plan,
• strong control over finances, operations, and compliance.

Sergey Kondratenko clarifies that of these six factors, four presuppose the presence of highly qualified specialists and high-quality human capital in the organization. This directly affects the effectiveness of its activities. The expert gives examples of successful IPOs over the past year.

IT giant Snowflake went from a preliminary sale of shares (Pre-IPO), where their value fluctuated between $15-$30, to the time of its immediate IPO, when analysts already estimated one share in the range of $70-$80. However, the actual placement of shares took place at $120, and already on the first day of trading the price rose to an impressive $253.93.

According to Kondratenko, the crypto exchange Coinbase experienced similar success, whose shares were trading in the range of $40-$50 before the public offering. However, immediately after appearing on the Nasdaq exchange, their price jumped to $328.28. This indicator emphasizes the demand for the company and the interest of investors.