In Focus

Sweet Smelling IPOs

This week in the Chicks Eye View we are going to be writing about IPOs. You know, those unidentifiable objects that Drew Barrymore and the little dude tried to phone home about? (I crack myself up.) UFO and IPO are as closely related as Drew is to being unrecognizable in a crowd. IPO is the acronym for Initial Public Offering. Like that helps. Part of being a Chick means that you can throw out a word like IPO, or a sentence like, "What has its stock returned since its IPO?" and actually understand what you are saying. Today is the IPO lesson on your way to becoming a fully-feathered Chick.

Let's say that you own a company; a flower shop. It has been a family business since your grandfather started it back in 1929. (He got the idea during the depression that sending flowers was a great way to cheer someone up after they had suffered a great stock market loss.) When your parents took over the "Flowers of '29" shop, they expanded it. Over the next twenty years they had shops all over the east coast. Boston was the main hub, but the 148 shops stretched the country from Maine down to Florida. "Flowers of '29" was synonymous with beauty, and continues to be a bride's blossom of choice. Your parents are ready to retire to Martha's Vineyard; they've become great friends with a few of their suppliers up there. "Flowers of '29" is being passed down to you.

Your husband, Larry, has been an employee at Oracle for years and knew there was some serious internet opportunity for flower shops on the web. The two of you sat down and created a business plan that would expand "Flowers of '29" to all fifty states and Canada. (Finally someone remembers me up here! I'm still a little ticked that I had to watch Canadian Super Bowl commercials.) The only problem with the plan was that you needed some money.

You and Larry took your idea to the bank for some financing. They were able to loan you $10,000. This was great, but nowhere near the 10 million you were looking for to get your business off the ground the right way. Your plan was that if you were going to expand, you were going to do it big, and not skimp. You were not about to tarnish the reputation of "'29" after all these years. One wilted flower does spoil the whole bunch was your grandfather's motto. You and Larry begin to tell the dream to some prospective private investors. They love the idea! One of them even has a connection to AOL and nabbing Keyword: Flowers. Could it be true? "Flowers of '29" and AOL in a partnership? The 10 million is raised in six months and your business flourishes.

Chick Lesson
These investors are called private investors and they are issued what is called preferred stock. They would give you the money in exchange for preferred stock. If each share of your preferred stock were worth $5.00, then the woman who bought $500,000 worth would have gotten 100,000 shares of preferred stock in return. ($5.00 x 100,000 = $500,000).

Now, five years later, the business is growing like a weed. and you can see how further expansion into Europe is your next move. You tie the whole marketing strategy into their almost worthless Euro as a need to send your neighbor some flowers. This is going to take some serious cash. like 50 million more. You've already soaked every friend you know for some cashola so it's time to take the company public. Aha. today's lesson!

Taking a Company Public
When you take a company public, you are offering the everyday folks a piece of your company. They have a chance to buy into your dream. They get to buy into your rose colored vision and hopefully reap some of the sweet aroma. You find yourself a brokerage house, for example, Dande Lyne Smith Magnolia, and they set a date of February 14th for you to take your company public. They set a price of $12 a share and will have 41.7 million shares to sell. (41.7 million x $12 = 50 million.) These new kinds of shares offered publicly are called common stock. You are going to have your Initial Public Offering on Valentines Day! As a PR move, you decide to get your grandparents, your parents, Larry and you on the floor of the New York Stock Exchange to throw rose petals at the opening bell.

At the close of the stock market February 14th, your stock traded at $15.00 per share. The public has bought into your dream as your shares rose 25% on their IPO day. They like you! They really, really like you! Congratulations!

This is how an IPO works. As your company expands, and sees need for more expansion, you will need money. Money can be raised privately (preferred stock) or publicly (common stock). Their first step at raising money is the IPO, after that, they get more creative and just issue more shares, but aren't allowed to call it an "Initial" anything anymore. That's it! Now for your Chick Assignment: Be sure to throw out the words Intial Public Offering or IPO before you see the next Drew Barrymore movie. Chick Cheryl's articles over the next two days are going to give you plenty of opportunity.

Off to get myself a bouquet, all this talk about flowers has me a little depressed. where were the Vikings in that Super Bowl?