IPO Advisor

An IPO advisor is the investment bank or financial professional you hire to guide your company through the process of going public. They manage the valuation, SEC registration, prospectus drafting, investor outreach, roadshow, and share pricing. Without them, most companies could not navigate the legal, regulatory, and market complexity of an initial public offering.

The lead advisor is called the lead underwriter, bookrunner, or left-lead bookrunner. They bear primary responsibility for the outcome and typically agree to buy the offered shares from you and resell them to investors, taking on financial risk in exchange for an underwriting fee.

The Lead Underwriter Does More Than Sell Shares

Your lead underwriter commits to far more than executing a stock sale. Their work spans the entire IPO lifecycle.

• Due diligence: They review your financials, business model, management team, and risk profile in depth before agreeing to take you public.
• Valuation: They build the pricing model and set the initial offering price range, balancing investor demand against your capital needs.
• Prospectus drafting: They coordinate with legal counsel to prepare the S-1 registration statement filed with the SEC. This document must include full financial disclosure and material risk factors.
• Roadshow: They organize and accompany your management team on meetings with institutional investors to pitch the investment thesis and gauge demand before pricing.
• Pricing and allocation: On the night before trading begins, they set the final offering price and allocate shares among investors.
• Stabilization: After the IPO, they may buy shares in the open market to prevent the price from collapsing below the offering price in the first days of trading.

The Bookrunner Syndicate Shares Risk and Distribution

Large IPOs typically involve multiple banks. The lead bookrunner runs the process. Co-managers participate in selling shares to their investor networks, earning smaller fees in exchange. Co-managers often add value in retail distribution or in reaching institutional investors the lead bank does not cover well.

Think of it like a real estate listing: one broker leads the deal, and others bring buyers to share in the commission.

The underwriting agreement sets the precise terms: number of shares, offering price, fee percentage, and the overallotment option, also called the greenshoe. The greenshoe allows underwriters to sell up to 15% more shares than originally planned and then buy them back to stabilize the price.

How to Choose the Right IPO Advisor for Your Company

Orrick, a law firm with deep IPO practice, advises companies to evaluate several criteria when selecting a bookrunner. The key questions to ask each candidate include:

• How many comparable IPOs has your team led in this industry over the last three years?
• Who specifically from your banking and equity capital markets team will be assigned to this deal, and what other transactions will they be running simultaneously?
• What is your institutional investor base, and which funds would be the right anchor investors for this company?
• What valuation metrics do you use for comparable companies in this sector, and what range do you project?

The Underwriting Fee Typically Runs 5% to 7% of Gross Proceeds

Underwriting compensation is called the gross spread. It is deducted from the offering proceeds before the company receives its cash. For most US IPOs, the gross spread runs between 5% and 7% of total proceeds raised. On a $500 million IPO, that represents $25 to $35 million in fees split among the underwriting syndicate.

Your lead bookrunner will also likely become your long-term investment bank for follow-on offerings, acquisitions, and debt transactions. The IPO relationship is the beginning of a banking relationship, not a one-time transaction, which makes choosing the right advisor one of the most consequential decisions you will make as you prepare to go public.

Sources

• SoFi – https://www.sofi.com/learn/content/ipo-underwriter-role-responsibilities/
• Orrick – IPO Insights: Selecting an Underwriter – https://www.orrick.com/en/Insights/2018/06/Selecting-an-Underwriter-for-an-IPO
• Winston and Strawn – IPO Underwriting Process – https://www.winston.com/a/web/291628/IPO-Underwriting-Process.pdf
• IPOHub – https://www.ipohub.org/article/investment-banks-ipos-selecting-bookrunner
• Swoop Funding – https://swoopfunding.com/us/business-glossary/ipo-underwriter/