Linux IPO Workshop Part 1: Preparing for the IPO

The path to wealth has many doors. Many have taken the one marked IPO and walked away instant winners. And today, if you add the word "Linux" to your product line, your chances of winning increase dramatically. For many, the whole subject of IPOs is mysterious and unreachable. But is it, really? A clearer picture evolves if we look at where the successful IPOs began and where they ended up. Let's look at the steps.

It should go without saying that an IPO is now a sure path to wealth. For every VALinux, which saw shares it priced at $30 soar to $300 on its opening day, there's a pets.com which achieved very little from an IPO where prices opened at $11 and closed at $11 on its first day. But somewhere between those extremes lies the reality for most businesses and, anyway, no one an fault you for dreaming.

How To Do It
First, let's address how you do an IPO. Typically, you'll find very traditional strategies. A company must prepare itself for a securities offering. Secondly, it must establish a market value in the private sector. Then, it must find an investment banker who will sell its shares to investors. On the way, the company must file a registration statement called an S-1 with the Securities and Exchange Commission (SEC) and various State securities commissions. Then, they have to "time" the offering to achieve maximum value.

In preparing for a securities offering, the old saying that you need money to make money applies. A company wanting to go public has to pass certain tests. For example, an independent CPA firm allowed to practice before the SEC must audit the company's financial statements for the previous three years. For a company that didn't have its financials audited during that time, that could take months. Then, if the company existed for say over five years, previous years' information must be included in the (S-1) registration statement. This usually costs hundreds of thousands of dollars.

If you plan to head for the door marked IPO, consider spending money for financial audits in advance of "having to". If you own a start-up (also called an early stage company), have your statements audited the very first year you go into business and continue to do so each year thereafter. Also, you will need to use a CPA firm that practices before the SEC. If you don't use such a firm, the financial statements will need additional work. That can hurt your timing and cost more money.

In addition to having audited financial statements, you'll need to have all your legal work in order. Many companies file articles of incorporation and pay fees to become a corporation but forget to do the rest of their legal work. You shouldn't until you decide to go public to prepare your corporate bylaws and resolutions, to record minutes, to issue your stock formally, document meetings and have everything signed. Do this in real time not after the fact. If you hire a CPA firm to audit your financial statements, they will demand that your legal work be done and done correctly. Or, you may not pass their audit tests and the CPA firm won't issue an unqualified opinion on your statements. Call that the "blue screen of death" in the securities world.

Additionally, you will need to document your business plan from 30,000 feet in the air to ground level. That's jargon for clearly defining your vision as a company, your business initiatives, your mission and your objectives. If you don't understand what that means, then you need to find out. Buy a good book that addresses the subject of business planning and read it, take a seminar or bring in a business consultant to help you.

Briefly, you will need to articulate your reason for existing. This is called a Vision Statement. The company vision isn't a goal. It's something that persists over time and every business needs a vision to sustain it. Business schools use the railroad industry as an example when they teach the traditional example of what happens if one fails to articulate a vision. The Railroad

Industry thought it was in the railroad business and didn't understand that it was in the transportation business. When airplanes came along, they didn't make the transition. If they had a vision, they didn't go high enough to see the whole spectrum.

Your business plan should clarify your vision differently from the short-term, and even the long-term, mission and goals. Your goals live in time and be measured by quantifiable results such as how much revenue you will generate over a given period of time. A goal statement might say "we will generate $1 million in revenue in the second quarter of our fiscal year".

Your mission adds qualifying aspects to the goals. In a business plan, the mission statement might add something like "we will build our company on a coherent value system emphasizing low cost ."

Next: The 'road show" and tips on options.