Although the litany of risks may seem depressing, they should be examined and weighed in terms of management, business goals, market position and growth strategy. Discussions on the use of proceeds from the offering is another area for scrutiny. It is not a good sign if the company is using proceeds from the IPO to liquidate debts or compensate existing shareholders. The more specific and future oriented the uses, the higher the comfort level. Absent specifics, investors should be wary.
Management is another important section.
No matter how revolutionary the company's products or services, without competent managers, the company's chances for success are slim. The importance of a strong and experienced management team cannot be over-emphasized. Perhaps the most revealing indicators of success or failure can be found in the financials. Certain accounting practices or changes, described in the footnotes to the financials, can be a tip off that all might not be well. Unexplained or unusual increases in accounts receivable or inventory are definite red flags.