In the world of Initial Public Offerings (IPOs), there are often well-recognized windows of opportunity. Typically, a down economy interrupts the flow of IPOs and diverts investment dollars into other vehicles, especially those seen as less risky. But today’s IPOs are more like going to the bank for a loan than the high-risk/high-potential reward investment they once were. Companies are more focused than ever on showing investors how they will protect their investment and allow them to get their money back. But there is still only a limited period of time where IPOs are feasible.

1. Why is the window open now?

• Investors are looking for opportunities to put their capital to work. With venture capital and private equity funds winding down, IPOs are appealing.
• Institutions are looking for good deals. IPOs are seen as a better option right now because of the tight capital market, and the valuations reflect this.
• The very scarcity of IPOs breeds confidence in the deals that do make it to market. The bar for an IPO is so high that if a company has successfully jumped through all the hoops and surmounted all the hurdles, it should be a good investment.
• A few high profile IPOs (A123 for example) have made it through the process and continue to hold their value, breeding further confidence in the current IPO market.
• The tax rate is going up in 2011. As Bill Schnoor, a partner and co-chair of Goodwin Procter’s Technology Companies Group says, “Sometimes the wind is at your back and sometimes it is in your face. You look for opportunities to go public during the times of greatest opportunity.”

2. Why target the current IPO window?

So why go public in this kind of low value, high expectation environment? First and foremost is that IPOs are an exit strategy for both founders and investors. Either group may have their own timeframe and reason for an IPO. They may need to extract their value now. IPOs are a great way to show the market that your company has value. Of course, there are always a few dogs that will squeak through but, for the most part, you will find that the increased scrutiny is a positive point in this market and can have an upside in terms of increased visibility and marketplace awareness.

• Are you “hot” and growing with a perceived open end to market share?
• Are you able to project numbers for your entire company?
• Is your team of professionals on-board and ready to go? You need experienced outside legal counsel and CPAs. Once you file your intent with the SEC, it is too late to start shopping around.

If you answered “yes” to any of these questions, you may indeed be an IPO candidate.

3. Why do windows close?

• Interest rates may change and offer better investment return elsewhere
• Certain geo-political events could impact investment strategies. For example, healthcare reform could signal a change in investment strategies
• War or other catastrophic events
• Current IPOs could fail and shake confidence
• General market expansion slows in the near term

What’s next?

If you think your company is a candidate for an IPO, you need to be getting ready now. Why? Once the IPO window shuts, you may need to wait, even if your firm is ready. While IPO preparation used to be possible in three months, today’s IPO candidates take 6-9 months, or more, to get ready. The process is much more thorough than it once was, and the scrutiny much greater. The window of opportunity could be short-lived and could slam shut at any time.

Note: preliminary data collected from the AMS 2010 Forecast Survey has begun to tell a tale of cautious optimism. More than 90 percent of those polled indicate that they expect to see a modest recovery in the IPO/M&A markets. (Take our survey and we’ll enter you to win Celtics tickets.)