What is a Pathfinder Prospectus?

A pathfinder prospectus refers to a preliminary prospectus that contains the statement of the financial status of a company that is going to be launched on an exchange or that will go through an IPO filing. A pathfinder prospectus is produced by the issuing company and sent to a group on underwriters and institutional investors before the initial public offering. 

Essentially, pathfinder prospectus is created to test how the market would react to a company going public or selling its shares in an IPO. A typical pathfinder prospectus contains information about the intended flotation of a company but gives no details on the expected price at which its shares will be sold.

How is a Pathfinder Prospectus Used?

The origin of a pathfinder prospectus can be traced back to the 1980s when it first appeared in The Times. The goal of creating a pathfinder prospectus is to give details about a company and the proposed flotation, clear misconceptions about a company and also create a pathway for an IPO. a pathfinder prospectus is sent to institutional investors and potential underwriters before the issue date of the company's shares. 

The information disclosed in a pathfinder prospectus is almost the same as those in an IPO prospectus, the only exception is that the former does not state the price at which the shares of the company will be sold. The price the shares are sold are determined by underwriters given the level of demand for the shares and the price of shares existing in the market.