To obtain the funding they need to launch a new company, start up companies often approach investment banks for assistance. If your new business is going to need money to expand and grow, you should seek the advice of an experienced financial adviser. He or she will be able to provide you with the necessary information required to file all of the appropriate forms with the SEC. As soon as you have filed all the proper documents, including your initial public offering (IPO) and business plan, along with the financial statements required by the Securities and Exchange Commission, your broker can place an online offer on your securities.
Once the underwriters have assessed your business’s capital structure and potential earnings, they will determine whether your new issue will be a high risk or low risk. High risk offerings are considered higher risk, since they involve greater risks than do those offerings that are below the initial public offering price. Your broker can explain to you which common stock issued by the company that you wish to include in your offering and which underwriter will execute the transactions for you.
In many cases, when you choose to finance your business through a private placement, your broker will provide you with one or more representatives from venture capital funds that have offered you terms on the sale of your common stock. The venture capitalists that will have issued you the shares will inspect your business, your employees and your production facilities. They will want to know everything that is currently happening at your business, so that they can make informed decisions about how to invest in your company.
The underwriter will work with several professional financial institutions to secure the financing that you need to start your new business. Because this type of loan carries less credit risk for the lender than most other types of business loans, your broker will arrange for you to repay the loan using your own money. You will make one monthly payment to the broker who will distribute the money to the various underwriters. These underwriters will then purchase all of the securities that are related to your offering price. Your broker may also provide you with one or more investment bankers who will invest the proceeds from your offering price.
There is a distinction between the initial public offering and a private placement. With an initial public offering, the financial institution that issues the securities also acts as the underwriter. A private placement is a totally separate entity from the financial institution that issues the securities. In this instance, the broker is not involved in the underwriting process.
Private placements generally require that the underwriter has long-term debt financing and a good strategic plan. This information is passed on to you by your broker. Once the broker receives this information, he or she will contact the underwriter. The underwriter will evaluate the offer and determine whether it is in your best interest to proceed with the sale of your shares. You have the opportunity to either decline or accept the offer. If you accept the offer, the long-term debt is eliminated and the company becomes ready to distribute new shares to its shareholders.