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IPO Information: The IPO and Company Valuation

When a company has a long history of performance in a market and there's a lot of data available, it becomes much easier to predict the company's value and understand what its securities are worth. IPOs , however, are a whole different ball game -- even if you read every word of a new public company's prospectus twice over, you won't have all the IPO information available.

A public company's executives want to persuade investors that the value they offer matches the price of their stock. Dealing with valuation in a way that proves they are serious, thorough, and detail-oriented is one way to raise investor confidence. But, since Initial Public Offerings are starting from square one in a certain sense, there are many different ways to handle valuation.

To be clear: Valuation is one of the most important steps in the IPO process . It proves that you have the goods to deliver on your initial security price. Overvaluing and undervaluing both have the potential to dampen investor confidence and ensure that you don't get the kind of capital support you need from your IPO filing .

Valuation in a company approaching its IPO is usually handled by a third party, usually the underwriter. The simplest way to create a baseline for valuation is to look at the total value of the company's assets and the total value of its profits to date. Of course, the underwriter must also discover what the market is willing to bear for the securities and what recent trends say.

Valuation can go bad when the parties involved overvalue the stock on the basis of performance that would require huge structural changes to achieve, acting as if it can be done in one or two quarters. Likewise, many companies fail to do anything approaching proper valuation -- instead, they survey a select handful of investors to discover their opinion.

Naturally, this is a limited way to handle valuation -- and it's one that saps a golden opportunity to introduce a new stock into a broad range of portfolios by giving it the price it deserves.

We do not do valuations of companies. A company that has an underwriter would usually negotiate that with the broker dealer firm doing the underwriting.

For more IPO Information, including how to take a startup company public, please contact us using the information below.

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