A career in investment banking is highly esteemed on Dalal Street. Bankers work long hours and face a lot of stress, but they have some of the most desirable and well-paid jobs in the banking industry. Their importance is especially clear during the IPO fundraising phase, though their roles and responsibilities are often unclear to most people. In this blog, we’ll explain what investment bankers do during an IPO launch.
The functions and duties of investment bankers during an IPO launch:
Underwriting:
When a corporation hires an investment bank, the bank serves as the IPO underwriter. Underwriting involves assigning a general value to the company and purchasing shares at a discount to eventually sell them in the open market. For large IPOs, it’s common for multiple investment banks to underwrite the new offering, with one acting as the lead underwriter.
Pricing and Valuation:
Pricing and valuation are among the most crucial tasks performed by investment bankers. Determining the appropriate price for an IPO share is difficult, as the investment bank must find a balance between maximizing cash for the client company and attracting investors. If the stock is priced too high, it may not attract enough investors, and if priced too low, it may not raise sufficient funds. Investment bankers assist corporate executives in determining a fair price for a new issue, but their valuations are not always accurate. Mistakes in pricing new shares often become evident only after the stock is listed on the secondary market. Recent examples of such IPOs include LIC and Paytm.
Roadshow:
The roadshow is a crucial part of marketing the IPO and gauging investor interest in the company going public. It involves raising awareness about the upcoming IPO and interacting with investors to understand their perception of the company. Bankers can help companies planning to go public by gauging the demand for shares during the roadshow. They meet potential investors in major cities to present the company’s prospects and generate interest in the IPO. Bankers usually lead these presentations, but Facebook took a different approach during its 2012 IPO. Facebook executives promoted the IPO informally, setting a new trend for tech companies.
Lock-up Period:
On the day of the IPO, investment bankers start selling shares to the public to raise the company’s market value and make a profit. Banks also enforce lock-up periods for new stocks, typically lasting six months, which prevent early IPO investors from selling their shares immediately. This is done to increase demand for the stock and ensure that a large volume of shares isn’t sold off quickly, which could cause a sharp drop in the company’s stock price.
Recognizing the significance of investment bankers’ roles during an IPO launch highlights their crucial contribution to the IPO’s success. They handle essential tasks such as underwriting, pricing, valuation, and marketing, all of which significantly influence the IPO’s outcome. Choosing an experienced and reputable investment bank can make the difference between a successful Hence, it is crucial for corporations to meticulously choose the appropriate investment bank to represent their IPO. Public offering and a disappointing one.