Before a company can sell its shares on an exchange, it first needs to go through the Initial Public Offering (IPO) process. One of the most critical steps in this process is the IPO roadshow, in which the company pitches itself to potential investors.
A roadshow presentation can take place in-person, with meetings in cities across the country, or the company can offer a digital version instead. Either way, the goal is the same: To generate interest in the company that will encourage investors to buy in.
What Is a Roadshow?
In general, a road show is a series of meetings or presentations in which key members of a company, usually executives, pitch an IPO to prospective investors. Effectively, the company is taking its branding message on the road to meet with investors in different cities, hence the name.
The IPO roadshow presentation is an important part of the IPO process in which a company sells new shares to the public for the first time. Whether a company’s Initial Public Offering succeeds or not can hinge largely on interest generated among investors before the stock makes its debut on an exchange.
There are also some cases where company executives will embark on a road show to meet with investors to talk about their company, even if they’re not planning an IPO.
How Roadshows Work
Typically, the roadshow is the third step in the IPO process, following the selection of an underwriter to oversee the process and the completion of due diligence. At this point, the Securities and Exchange Commission (SEC) reviews all of the documents submitted in connection with the IPO while the company and the underwriting team get ready for the roadshow.
The underwriters and executives taking part in the IPO roadshow work together to decide which cities to visit, which investors to target, and which information to include in the roadshow presentation.
A typical IPO roadshow presentation highlights the most important information the company wants investors to know, including:
• The company’s history and its plans regarding the IPO
• Details about the top executives
• The current vision and mission statement
• Financial performance and earnings history
• Future sales projections and anticipated growth
• IPO goals
A roadshow IPO presentation may include digital media, such as videos or a slideshow. Investors have a chance to ask questions during a Q&A session following the presentation.
The road show tour for an IPO can last anywhere for two to four weeks, depending on how many stops the company makes along the way.
New Digital Roadshows
Virtual roadshows have become an increasingly popular alternative to the traditional IPO roadshow. The COVID-19 pandemic forced companies to rethink the way they meet with investors, resulting in a growing number of roadshows taking place online-only.
Digital roadshows mean companies forgo a chance to meet with prospective investors face-to-face, but they offer an advantage in terms of increased efficiency. Company executives and underwriters save money and time, since they’re not traveling. Virtual IPO roadshow presentations also have the potential to reach a broader audience, rather than being limited to just a handful of cities.
If a company schedules multiple presentations in a single day, using a virtual format, they can complete the roadshow move through the IPO process more quickly. This could make it easier to determine the price of an IPO if there’s less opportunity for pricing to be affected by volatility. Pricing the IPO typically happens at the conclusion of the road show.
Importance of Roadshows
The IPO roadshow presentation is an opportunity for a company to convince investors that buying stock in their company is a good investment opportunity. The main purpose of an IPO is generally to raise capital and companies can’t do that without interest from investors.
If the company goes public and no one buys its shares, then the IPO ends up being a flop, which can affect the company’s success in the near- and long-term. If the company experiences an IPO pop, in which it’s price goes much higher than its initial offering price, it could be a sign that underwriters mispriced the stock.
A road show is also important for helping determine how to price the company’s stock when the IPO launches. If the roadshow ends up being a smashing success, for example, that can cause the underwriters to adjust their expectations for the stock’s cutoff price. On the other hand, if the roadshow doesn’t seem to be generating much buzz around the company at all, that could cause the price to be adjusted downward.
In a worst-case scenario, the company may decide to pull the plug on the IPO altogether or to go a different route, such as a private IPO placement.
The Takeaway
While individual investors typically don’t have access to roadshows, you can still participate in the IPO market. Buying IPO stock can help you to diversify your investment portfolio. The key is doing your research to find the right companies to invest in as they go public.
One way to get started is by opening a brokerage account with the SoFi Invest® online brokerage. SoFi members can invest in IPOs via their phones before the companies appear on a public exchange.
FAQ
What is the purpose of a roadshow?
The purpose of an IPO roadshow is to generate interest in a company among prospective investors. The company executives and underwriting can meet with investors in-person or virtually to share details about the IPO, the company’s financials and its goals.
How long is IPO after roadshow?
The IPO can take place in as little as two weeks after the roadshow is completed. The actual timing depends on a number of factors, including whether the underwriters determine that a price adjustment is needed or if any snags come up involving the filing of key documents.
Are IPO roadshows public?
The IPO roadshow process typically focuses on institutional investors, rather than retail investors. So the roadshow presentations have traditionally been private affairs. But with more companies opting to host virtual roadshows, there’s potential for the general public to be able to view IPO presentations online.
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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
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