INITIAL PUBLIC OFFERINGS - Research Paper Example

AVG is a world leader in software development, threat detection, threat detection and risk analysis. The company also invests in research and development and collaborates with leading universities in order to maintain its technology edge (Company Profile, 2012). The company is currently contemplating to issue an IPO (initial public offering) so that it can expand its global market. The company has two options as to which type of IPO the company should use. The company may decide to either use the traditional IPO or use the online auction.

In this research essay, I will discuss the two types of IPO issues and look into lessons learned from the module one case. The traditional approach to getting capital has usually been the way to go for most companies seeking equity. However, with the advent of the internet and technology some start-ups are choosing to do online auction in an effort to seek capital. Both types of IPO have have their pro and cons. I will start by analyzing the traditional IPO method before embarking on online auction analysis.

As I had earlier mentioned that, the traditional IPO method is the most common way of getting capital. The traditional method has some advantages and disadvantages. Regardless of the type of IPO used, the company issuing an IPO usually has several benefits. First, the company increases it capitalization, net worth, liquidity and prestige. However, the company has to abide by the rules and regulations of the SEC (Security and Exchange Commission) which is the body that oversees the registration of public companies in the U.S. Companies going public are required to disclose their financial statements to the public.

This may negatively affect the company’s perception especially during the bear market and this may decrease a company’s stock price, lower its liquidity and capitalization. In order to have a successful IPO, a company needs to attract investors. Enough investors who will create large levels of capitalization that exceeds the amount that had been privately invested. In the traditional approach, companies conducting the IPO pitch to investors on investing in to their companies on road shows.

These road shows usually target institutional investors. Institutional investors play a huge role in influencing small investor participation. Therefore, underwriting firms usually offer institutional investors discounted stock prices as what is termed as pre-IPO rates. The courtship of large institutions is crucial to the success of IPO offerings because it facilitates the participation of other investors in the market. In addition, it guarantees that the underwriting company gets a good stock price, which will determine the future value of the company as well as determine the capital collected.

As far as the cost of going public are concerned, the traditional approach may at times prove to be costly. First, the company has to disclose financial and business information to potential investors. The disclosure might be costly to the company considering that there is always competition in business. Therefore, the disclosure of such information may provide valuable information to the competitors. Second, the traditional method of issuing IPO may take anywhere from six months to two years.

A lot of time and effort is put towards gathering the relevant information and putting things together. This distraction slows down the day-to-day operations of the company and engages the senior management in focusing