The Etsy IPO roadshow has been underway since April 1. The stock is expected to start trading April 16. One thing not every investor understands, but should, is what happens during the IPO roadshow process, and why it is so important.
An IPO roadshow - sometimes referred to as a "dog and pony show" - is one of the many steps that a company goes through in marketing its IPO.
But it's by far the most important step. According to a study by Ernst & Young, roughly 82% of institutional investors worldwide cite a roadshow's quality as a key component in their buying decisions.
Here's a detailed breakdown of what happens during the IPO roadshow process...
What Happens During the IPO Roadshow Process?
The IPO roadshow occurs sometime between when a company sets the deal's terms and when the deal hits the market. For two weeks during that period, the company travels across the country to make one final sales pitch to potential investors.
The show usually stops at the major financial centers such as New York, San Francisco, Boston, Chicago, and Los Angeles. The company may travel to international destinations like London or Hong Kong if appropriate.
At each stop on the tour, the IPO underwriters introduce the company and its executives. The company's senior management explains the company's history and demonstrates its growth potential to audiences.
The executives typically give a presentation providing financial information that will attract deep-pocketed investors. The show usually includes the firm's business outlook, why it's launching an IPO, investment growth, possible opening stock price, earnings figures, and a Q&A session with analysts and investors.
The IPO roadshow can be a very grueling process since it can require up to five presentations each day. But each presentation is vital for the deal's success.
"Road shows allow you to tell your corporate story, but they also enable you to showcase the talent, caliber, and integrity of your management team through an organized, orchestrated, smooth presentation," noted a report by PricewaterhouseCoopers.
Pulling off a successful IPO roadshow means doing more than just giving the facts. It involves giving prospective investors something that can make or break an IPO...
One Thing That Ensures a Successful IPO Roadshow Process
Many companies make the fatal mistake of promoting their IPO strictly through facts and figures - but it's called a "dog and pony show" for a reason.
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The company's management has to combine the data with an interesting and entertaining story. The "show" needs to be delivered with passion to make the audience enthusiastic about the investment opportunity.
A perfect example is the Alibaba Group Holding Ltd. (NYSE: BABA) IPO roadshow, which lasted from Sept. 8 to Sept. 18, 2014.
Alibaba underwriters and executives - including Founder and Chairman Jack Ma - presented the stunning statistics investors had anticipated. The total value of transactions via the company's services reached a massive $296 billion between June 2013 and June 2014. There were 279 million annual active buyers placing 14.5 billion orders over that same period. Alibaba is the world's largest online retailer by average merchandise volume.
But the company's beautifully shot introduction warmed audiences up before hitting them with figures. The eight-minute video begins with Jack Ma briefly discussing Alibaba's humble beginnings and mission. The video then shows how Taobao and Tmall - both operated by Alibaba - has personally influenced several different people across different regions of China.
"When I first saw Taobao, I knew very little about the Internet," says Ding Hongyu, a Chinese painter depicted in the video. "A month after posting my paintings online, I sold my first one. Taobao gave me hope."
The video concludes with a closing speech from Ma. He summarizes how Alibaba's spirit is geared toward improving overall quality of life.
Alibaba became the most successful U.S. IPO of all time on Sept. 18. It raised $21.8 billion and skyrocketed 75.2% less than two months after its debut.
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