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Initial Public Offering (IPO) | Definition| How IPO Process Works? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to channel of
WallStreetmojo watch the video
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by clicking the bell ican today we have a
topic with us is called initial public
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offer or one of the very hot topic
around the globe you know if you see any
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country any company in any particular
company they are always interested in
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initial public offer that is you know
you get the money from the public who
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subscribes your shares and you can use
that money for your expansion purpose or
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probably your working capital and so on
and so forth as you can see we here
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there's a detail offer from the SEC
regarding the f1 registration of Alibaba
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Group Holding Limited one thing I want
to place in front of you that you know
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this was the biggest IPO that has ever
happened and that was on the 6th of May
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2014 the Chinese e-commerce heavyweight
Alibaba file a registration document to
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go to the public in the US now in what
may be called as the mother of all the
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initial offerings in the US history
now Alibaba is fairly unknown entity in
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the US and other regions though its
massive size is comparable or even
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bigger than Amazon or Ebay
reading through the Ali Baba's if you
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see for the s-1 filings was very
interesting educating and making me you
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know realize how big their businesses
and how complex is the Chinese of
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internet web market now IPOs one of the
most popular terms in the world of
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business now in this tutorial you will
get to know everything about the IPO
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process you know how it works and so on
and so forth so let's begin now first
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and the foremost thing we are going to
start with is what is the IPO that's
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initial public offer see IPO stands for
the initial that is at the inception
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that is the starting stage where you go
out to the public and you offer them
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these shares that is your initial public
of no in layman's language the
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definition of IPO is that you know it is
a process of selling the first shares of
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the private company to public As
let's take an example to understand this
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let's say Michele Michele has a
bookshop which is very profitable
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she keeps all the ancient books from old
times and she had a decent amount of
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loyal customers or she feels that she
needs to expand her business so that I
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know she can go in different cities
where more people would love hurt
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elections so you know she has a
profitable business but she does not
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have money in hand to build more stores
in different cities and also she does
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not want to go for the debt market the
debt hence she decides to go for the IPO
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and she contacts a local investment
banker okay who values her her
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bookstores the investment banks finds
out that you know the evaluation of her
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book story let's say $4,00,000
and the advice Michele that in all she
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should go for an IPO of let's say 20,000
shares how much is 20,000 okay
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by offering each shares at 20 each so
that comes to $4,00,000 that's
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that's $4,00,000 in total so Michelle
decides to keep 50% ownership so this
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will go to Michele okay and issues the
rest of the shares at 20 per share so
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50% will go to the public so this is
like a free float in the market this is
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a free float in the market where the
market people they they play on this
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particular shares okay so Michele with
the help of this now she has $2,00,000
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okay to build more stores in
different cities and Michelle builds up
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let's say 4 stores in 4
cities and becomes more profitable ever
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seen so the purpose of the idea is to
create funds by selling company shares
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to public and it is the best way out of
those who don't want to go for you know
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long term loans in that particular
scenario this is the best way to do
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things now how the IPO works
see an IPO is not an indication that I
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know a private company needs more
capital to fuel its growth but it's it's
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also symbol that the business has made
their mark in the world map so not all
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the business go for an initial public
offer only few who feel that you know
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that they are competitive enough to go
big and only go for the initial public
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offer but IPO not at all a bed of roses
so with recent you know socks act that
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is a Bernese Oxley's act in 2002 IPO
has become n produces process which not
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only costs business more money but also
the REC requirement is too much which
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are which which very few company can
crack and having seen that you know
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there are following you know steps that
you need to take if you would like to go
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your company from private to public
first decide why you are going for an
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IPO see we know that the reason you are
going for an IPO offering to is to raise
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money but why you want to raise money do
you want to expand your business do you
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want to go for backward integration of
our integration do you want to take
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versus if I have business see no matter
what your reasons have you have account
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them and in gold to the next step
that is second hire an investment bank
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now over here once you have clarity of
on why IPO is essential option the next
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step is to find out an investment which
can work on the underwriter for your IPO
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process and underwriter who basically
writes your shares okay and so before
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selecting the bank choose whether the
bank has any previously cause of
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conducting any initial public offer now
having experience in conducting I view
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will take away a lot of burden from your
shoulder third the work of n under
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writer
now once the investment bank is higher
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it acts as a underwriter the underwriter
decides the value of the company and how
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much the investors are willing to pay
for shares in the company after that the
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initial public offer is planned out and
at pre-decided price company shares hit
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the stock mark then the individual
investor you know will purchase shares
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and the company will get new funds so the entire transaction is first funded by
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the investment bank so that the company
has enough funds before the IPO
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now IPO process usually takes used to it
it takes months to complete and in some
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in IPO is not always successful who will
need to bear the cost then the sad part
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is even if the IPO becomes unsuccessful
the cause has to be borne by the company
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and it usually costs them around $3,00,000 do you have to be ready with
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this amount $5,00,000 so the cost
needs to be incurred for printing legal
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matters and accounting fees and so on
and so forth it's really very costly
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fifth is the due diligence part now if
you want to make your initial public
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offer successful first go in the market
and find out whether your idea of
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expansion or diversification is a great
idea
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ask your you know you can ask your
customers okay find out the competitors
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primary research is very much important
then you know then the secondary
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research so invest first in the primary
research and record your findings
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because then they compare the findings
with the secondary research and see
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whether you can see any trend that is
possible if the answer is yes then
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follow along and if not then go deep and
find out more so due diligence is
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critical for your IPO because it
ultimately decides whether the IPO would
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be you know successful or
no the six-step we have reached to the
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fifth one will go for the sixth one is
places to go public which are the place
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that you can go for public sea after all
the preparation it's time now where you
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exactly will go public the stock
exchange okay so there are a various few
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option that you have where you can go
first of course is the NY SC the New
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York Stock Exchange there is also a
Mac's American Stock Exchange and you
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can also go for Nasdaq that's National
Association Association of Securities
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Dealers automated quotients quotations
so other options like you know are
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available so you can check that out like
for example many startup companies
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choose over to the counter a bulletin
board and PIN sheets because you know
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there is no requirement for assets
whatever new as they grow in revenue and
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assets so they grow up in the ladder and
choose a higher arm7 is the final thing
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while going for an IPO that is one thing
the most company is Neglect is that is
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you know running the business so an
initial public offer is very
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time-consuming thing you know which
takes up all the time
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you know as a result so the main thing
gets ignored and so talking out of the
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plan to run your business effectively
while you hustle for IPO is an essential
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thing so otherwise during the process
you may lose out decent portion of the
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revenue so after discussing all the
positions let me finally give my
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conclusion on this the initial public
offer isn't all for all the companies
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and not all the initial public offerings
are successful so there are many
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instances where IPO fail or did not do
well as expected but as big companies
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are captured by the media and they
already have funds to run a successful
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IPO hire a great underwriter as a result
ensure a smooth flow of hire a great
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underwriter as a result you know to
ensure a smooth flow of issuing the
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shares so we know that you know they are
successful and we seem to believe that
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all are successful but the truth is
darker than it seems for example you
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know if you look at the statistics of
epic um or or Corp you know or any other
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you you see that you know the list of
the field life here is much
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longer than it seems so that's it for
this particular topic if you have
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learned and enjoyed watching this video
please like and comment on this video
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latest updates thank you everyone
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Cheers
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