This perky little pescado grows to be a foot long, has an easily identifiable vertical striping pattern, and often swims with sharks and other natural predators in an effort to—wait a second. This doesn’t sound right. [shuffles notes] Ah, yes. Our bad. That’s a pilot fish we were talking about there.
“Pilot fishing” is a method of testing investor sentiment about a company prior to its IPO. We don’t see a lot of this in the U.S., largely because it’s technically illegal. Good reason, right? Anyway, the SEC forbids it, because they think it could unduly influence the price of the IPO while ignoring the advice of the underwriters who usually determine these things.
But in the UK, that’s less of a concern. On that side of the Atlantic, the thinking is more like that surrounding a TV show’s pilot episode: if the consumers like what we’re trying to market, then it’s a good time to get our IPO on. If they don’t, then maybe we should hold off, regardless of what our underwriters are saying.
The company considering going public issues a type of pre-prospectus to a small group—like a focus group, but for stocks—and asks them for their (confidential) opinion. The pre-prospectus doesn’t have financial data in it, like a normal prospectus does, but it’s supposed to have enough info in it to allow the focus group to knowledgeably advise the organization on whether or not they should go public…and how much that IPO should be worth.
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Finance: What is a red herring? (Plus Br...23 Views
finance a la shmoop what is a red herring?
hi I'm red, red-err-ing.. red herring I'm here to tell you about my role in high [Red herring swimming in the ocean]
finance I'm actually the co-star of an IPO, how so you asked well yes of
course you asked..what's that, what's my primary job well my primary job is to
distract that's kind of why I was put on earth here to distract people, fish and [Man on a ship]
birds from you know other things that's what the red in red herrings do and no
we're not communists although we all do like the same brand of plankton but
that's me the fish me the IPO mascot that's a lot more fun...
I'm the namesake of an investment marketing document I'm the papers that
get filed with the SEC that outline the details of a new offering an IPO....
A secondary placement of founder shares after a company has already been public
a while as well I'm also there for a bond offering, a proposed merger all of [List of what red herrings are used for]
them need me so why do I exist.... while the goal here is to give investors
time to really get to know the issue they may want to invest in I don't carry
all the details not specific pricing, no legally binding asks and just an outline
of what's being proposed but I'm like 98% done and by not being fully done
it's easy to amend and tweak and change this and that so that the really uptight [Red herring talking]
fisherman at the SEC don't get all hacked off if they you know end up
reeling something in that well they didn't want [Fisherman catches a shark]