Submitted by: Submitted by rainroigas
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Words: 1093
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Category: Business and Industry
Date Submitted: 04/19/2011 07:09 AM
3) Netscape’s business model was revolutionary. For a young, rapidly growing company one way of raising equity capital is through public offering and this is exactly what Netscape managers pursued. There was something, though, revolutionary about this IPO, they were doing it before actually ever making a dime in profits. Luckily, their business model was revolutionary as well, which guaranteed Netscape an extremely successful IPO
The IPO process begins with the filing of the registration statement to the SEC. The registration statement includes the issuing firm’s audited financial statements and a complete description of the firm’s business - products, prospects, and possible risks. When company issues common stock or shares to the public the issuer may obtain the assistance of an underwriting firm. In that case, underwriters are legally responsible for ensuring that the registration statement discloses all relevant and material information about the firm. The underwriter is also responsible for forming the underwriting syndicate, marketing the stock, and allocating shares among syndicate members. Syndicates are formed to share risk and help sell the issue. The basic compensation received by the underwriter is called gross spread or underwriting discount (usually 7% of proceeds).
Marketing the issue typically involves a “road show”, in which the firm’s management and underwriters attempt to sell the IPO to institutional investors. Road shows also serve as a market barometer that enables the underwriter to estimate the demand for an issue. Thus, the road show will influence the offer price issue, the number or shares, and the allocation of shares to particular investors. This is called the book-building process, and it begins upon the SEC’s approval of the registration statement. In the process of book building, Netscape’s lead underwriter, Morgan Stanley, proposed that Netscape increase the offering price of $14 per share to $28 per share due to the extent of...