There's plenty of chefs in the public offering kitchen

The IPO process is extremely complex. A company must abide by onerous�regulations, such as the Securities Act of 1934 and the Sarbanes-Oxley Act. As a result, even top-notch companies can have problems somewhere down the line. Google (NASDAQ:GOOG), Salesforce.com (NYSE:CRM), Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA) all faced missteps along the way.

To deal with the complexities, a company must hire a variety of top-notch advisers. Not to mention, businesses also have to get funding from private investors. By the time a company goes public, a ton of people have had their hands in the mix in one way or another. To sort it all out, let’s take a look at the main players in an IPO:
Venture Capitalists

Venture capitalists (also just called VCs) are people or firms that invest in early-stage companies. The funding amounts can range from $1 million to $100 million or more.

A VC often will have a board seat to take an active role with a company. This can include finding top employees, snagging customers and even making acquisitions.

For VCs, it’s usually just a handful of deals that will generate strong returns, as the risks are substantial for start-up companies. But in some cases, the returns can be enormous. An example is Accel Partners, which invested $12.7 million in Facebook in 2005 — and could see a return of more than $11 billion once the company goes public.

Some of the top VCs in the game include Andreessen Horowitz, Sequoia Capital, Accel, Benchmark Capital, NEA, Kleiner Perkins and Greylock Partners.

See Also: 4 Reasons Companies Go Public
Investment Bank

An inve stment bank (also known as an underwriter) is a Wall Street firm such as Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and JPMorgan (NYSE:JPM) that essentially manages the whole IPO process. This means drafting the necessary documents, coming up with a valuation, finding the right investors and conducting the road show.

For its services, an investment bank will be paid based on the amount of money raised. This usually amounts to a percentage ranging between 2% and 7%.
Attorneys

Companies usually will have in-house counsel, as well as an outside firm that will handle SEC disclosures. Both groups will help put in better check systems and engage in “corporate cleanup,” which means making adjustments to contracts and so on.

Some of the top IPO law firms include Wilson Sonsini Goodrich & Rosati, Latham & Watkins, O’Melveny & Myers, Shearman & Sterling and Sullivan & Cromwell.

See Also: How an IPO Works
Auditors

A company will have an internal auditor and an external auditor. They will focus on making sure a company’s financials are in compliance with generally accepted accounting principles (GAAP). The external auditor then will write a “comfort letter” that vouches for the financials.

Having a well-known auditor is extremely important, especially considering the kind of damage an accounting scandal can do. Top auditors include PricewaterhouseCoopers, KPMG and Deloitte & Touche.
Public Relations Firm

When a company is in the IPO process, it must abide by the “quiet period.” This means management and insiders are limited in what they can say to the media, as to not hype the offering.

No doubt, this isn’t a f! un task for public relations firms, which traditionally want to increase their clients’ visibility. But experienced PR firms will know how to play within the rules while still keeping the lines of communication open.
Financial Printer

It seems archaic, but a company must print all its SEC filings. This can be a hassle, as S-1 filings can easily be several hundred pages. And speed is important, as an IPO filing often must be turned around to the SEC within 24 hours.

One of the top names in financial printing is R.R. Donnelley & Sons (NASDAQ:RRD), which acquired longtime printer Bowne & Co. in 2010.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of �The Complete M&A Handbook”, �All About Short Selling� and �All About Commodities.� Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Why IPOs Are a Lousy Bet

I never thought that one of my guilty pleasures would give me investing insight. But something I learned watching a home shopping channel showed me why buying into initial public offerings makes less sense than ever right now.
I'll share that insight later in this article. But first, I want to give some perspective on where the IPO market stands right now.
IPOs are back!
After a several-year hiatus in which we saw relatively few IPOs of any magnitude, initial public offerings are back in vogue. Facebook's IPO announcement last week was just the latest in a big series of companies going public, and you can expect far more IPOs to come if the stock market continues performing well.
But just because IPOs are getting more numerous doesn't mean they're a smart investment. It used to be that going public was a great accomplishment that marked a pinnacle of success for a company. But now, the IPO process is increasingly about prestige and exclusivity rather than actually putting a legitimate price on a company's value -- and IPO investors are the ones who'll suffer in the long run.
What I learned from home shopping
When I channel-surf, I often get stuck on a shopping channel, especially when they're selling coin sets. I like coins, but what draws me to the program is how they market them. The announcer always makes it clear that a coin is part of a relatively small set available, that quantities are limited, and that you should therefore buy now before they're all gone. That rarity is seen as a mark of potential price appreciation for the future.
What does that have to do with investing? Companies going public have taken a page from the home shopping channel and borrowed the same marketing strategy -- turning IPOs into limited-edition stock offerings. But there's a catch that can burn you in the long run.
Get your red-hot shares now!
In particular, companies are offering tiny amounts of their overall stock. Even t! hough Fa cebook's $5 billion offering will dwarf other tech IPOs, it will still represent only 5% of the total shares outstanding. That's become commonplace among tech companies; Groupon (Nasdaq: GRPN  ) only offered 6.3% of its outstanding shares in its IPO -- the lowest stake for an IPO in the past decade -- while LinkedIn (NYSE: LNKD  ) came in at 8.3%. Those stakes are far less than the 20% to 25% that are more typical for an initial public offering.
Several analysts at the time pointed out that the scarcity value contributed to high valuations -- valuations that for Groupon and LinkedIn soared during the first hours of trading but then quickly led to big price declines for the companies involved. And interestingly, it's not a strategy that every tech company is following. Zynga (Nasdaq: ZNGA  ) , for instance, offered nearly 15% of its shares in its IPO -- a move that some blamed for the company's failure to jump on its IPO day.
But now you're starting to see the trend move beyond tech. Casino company Caesars Entertainment is planning a tiny offering of just 1.8 million shares worth about $16 million. That apparently may not include amounts that selling shareholders may add to the offering, but at least as the prospectus reads today, it represents only 1.5% of the total shares outstanding.
IPOs shouldn't be collectors' items
The problem comes when lock-up agreements expire, allowing investors to sell more shares onto the open market. For instance, Pandora (NYSE: P  ) came out of the gate with a roar at its June IPO, with shares trading as high as $26 before settling at an opening-day close of $17.42. But by the time locked-up shares became available six months later, the shares were down to around $10. Battery-tech company! A123 Systems (Nasdaq: AONE  ) saw a similar plunge on the day its lock-up period ended.
IPO investors need to realize that companies understand supply and demand, and that low-float offerings are designed to make investors pay too much for shares. Don't let share scarcity scare you into overpaying, or else you'll end up with an investment that you can't just return to the shopping channel.
On the other hand, if you start out with excellent companies, collecting their shares for the long haul is a smart move. Discover the names of three great prospects by accepting my invitation to read The Motley Fool's latest special report, which focuses on stocks that will help you retire rich. The report is absolutely free, but it won't be around forever, so click here and read it today.