SME IPO Guide for companies

Find various ways of raising capital for SMEs and understand the relationship between the source of funding and the growth stage of the business.

IPO stands for Initial Public Offering. This is a process whereby a company that is privately owned and may have been run by family members, friends, or selected investors, now wants to expand its business and raise capital. It then wants to go public for the first time and sells a portion of its shares to the general public in the form of stocks.

SME exchanges are electronic exchanges on which shares of listed SME companies are bought and sold. They enable SME companies to raise capital from the public.

There are certain norms to be followed before listing an SME, such as track record, financial data, sponsor contribution, issue size, etc.

The process for SME IPO includes suitability screening, appointment of investment bankers, due diligence, IPO prospectus preparation, road shows and marketing, pricing, IPO underwriting, listing, and post-IPO compliance. The process is comparatively simple; it just needs to be adapted from company to company, depending on the complexity of the company's finances and market conditions.

By definition, intermediaries are a set of companies or individuals that play a critical role in the SME IPO process to ensure that the IPO is executed smoothly and in compliance with all regulatory requirements. These include the Merchant Banker, RTA (Registrar and Transfer Agent), Stock Exchange, Depository Participant (DP), Underwriters, and Legal Counsel.

SME Merchant bankers in India play a crucial role in both the pre-and post-issue IPO phases for small and medium-term enterprises.

A Market Maker is an entity that works with an Exchange to increase liquidity in the stock market. They do this by participating in the transactions on the Exchange as both buyers and sellers.

The cost of SME IPO ranges from 50 lakhs to a few crores, depending on the size of the issue and the services used by the issuing company.

The IPO valuation determines the fair market value of a company’s shares before they are offered to the public. This valuation for the IPO of SMEs determines the price at which the shares will be sold during the IPO.

Pricing an SME IPO (Initial Public Offering) is one of the most critical decisions an issuer will make. It directly influences investor participation, post-listing performance, capital raised, and long-term market credibility.

The success of the SME IPO depends on various factors. This includes a strategic approach, a strong project pipeline, an industry focus, experienced management, niche markets and growth opportunities.

SME IPO consultants are the professional firms who help small companies go public through an SME IPO.

SME IPO post-listing requirements include filing a reconciliation of share capital, share ratios, financial results, management compensation structure, codes and policies, and more.

The mandate letter is an agreement between the merchant banker (lead manager) and the issuing company for their proposed SME IPO.

The Market-Making Agreement is between the Market-Maker and issuer company for the proposed SME IPO. Market-Making is mandatory for shares listed on the SME Platform.

The Underwriting Agreement is between the Underwriter and issuer company for the proposed SME IPO. Underwriting is mandatory for shares listed on the SME Platform.

The registrar contract is concluded between the registrar and the company for the proposed SME IPO. The Registrar processes applications, allotment and transfer of shares and funds.