Page 154 - Initial Public Offering - An Introduction to IPO on Wall Street

And some businesses that are IPO-ready are themselves starting to warm up to the advantages
of having small investors in stock allocations. A buy-and-hold approach for stocks is more
likely to be practiced by the little guy or smaller investors, ensuring less uncertainty for the
shares of the company.

8.3.2 Qualified Investor
This category of investors includes all mutual funds, public financial institutions, international
portfolio investors, and commercial banks. Before applying, all these organizations need to be
registered with the SEC.

Before an IPO begins, underwriters attempt to sell significant amounts of IPO shares to
qualified investors at an attractive price. This happens because the selling of the shares to QIIs
goes a long way in underwriters achieving the targeted capital.

To ensure minimum variance during the IPO process, SEC demands that institutional investors
sign a lock-up agreement that typically lasts for 180 days. For a business launching an IPO,
QIIs are particularly important. This is because, before the price discovery in the stock market
occurs, underwriters sell IPO stock to the QIIs.

If QIIs purchase a greater number of shares, the general public will have a lower number of
shares available to them, leading to higher share prices. For a business, this scenario is desirable

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