Pilot Fishing

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.