Page 139 - Initial Public Offering - An Introduction to IPO on Wall Street

low valuation or witnessing a significant price drop may also make new investors reluctant to
buy stock, demoralize workers and discourage the founders of the business and other early
investors. Regaining a decreased market cap or recovering market trust could take months or
even years.

A down-round prospect can accentuate the adverse effects of a low valuation. The corporation
may be exposed to anti-dilution requirements in a down-round, which shield current investors
from dilution of equity by changing the percentage of ownership of an investor to remain
constant.

Both current and potential stakeholders (workers, investors, etc. will be adversely affected by
this situation, leading each new stock share to be valued lower. Nevertheless, despite these
possible risks, the unfavorable messages sent to the market by a canceled or substantially
delayed IPO may be just as dangerous as joining the public market in uncertain conditions.

Therefore, businesses that have already applied for an IPO publicly should also be careful about
delaying pricing too much. This is one of the explanations for US filers frequently taking
advantage of the Jobs Act, which allows a business—during the SEC evaluation process—to
submit provisional statements of registration privately and only file publicly when appropriate
in the final weeks before the roadshow.

In most situations, businesses are not able to lower the price range of the deal to satisfy
underwriters and investors, thereby delaying the IPO more often. The potential drawbacks of
either option should be properly examined, whether your business prefers to proceed with an
IPO during uncertain market conditions or to delay it for a short time before the volatility index
(VIX) decreases.

7.1.2 Industry Competitiveness and the Results of Your Industry's Recent IPOs
IPO timing techniques may be influenced by the present competitive environment and outlook
of a business’s industry. Competitors' behavior may have a particular effect on new, high-

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