Basics
Basic6 Min Read
IPOs: How a Company Comes to Market
The day a private company gets a public price tag — and why that day is so volatile.
Every company you see on the exchange was once not there. It was a private company held by founders, employees and a few funds; its shares had no price because there was no market where they traded. An IPO is the process that moves that closed structure onto a market open to everyone.
Why Companies Go Public
There are three reasons, and knowing which one dominates changes how you read the deal:
- Raising money. The company issues new shares, and the proceeds go into the company — factories, products, growth.
- An exit for early investors. Funds and founders who invested at the start want to turn shares into cash. In that sale, the money goes to the selling shareholder, not the company.
- Turning stock into currency. A listed share with a live price becomes a means of payment in acquisitions and employee compensation.
This is why the "who is selling" section of the prospectus gets read: an offering that mostly raises new capital and one that mostly cashes out early investors are not the same event.
The Process: From Filing to the Bell
A Typical IPO Timeline
- Months aheadThe company picks investment banks and files an S-1 with the SEC: financials, risks, ownership — all public for the first time.
- Weeks aheadThe roadshow: management pitches institutional investors. The banks collect demand into a book.
- Days aheadA price range is announced ("$24–27 per share"). Strong demand pushes the range up.
- The night beforeThe final offer price is set and shares are allocated to institutional buyers.
- Day oneThe stock starts trading. The first trade price differs from the offer price — sometimes wildly.
Two Prices: Offer and Open
On IPO day there are two separate prices, and mixing them up is the most common mistake.
The offer price is what institutional buyers paid the night before. The opening price is where the first public trade matches the next day. "The stock jumped 35% on day one" usually means: the open printed 35% above the offer price.
The practical consequence for you: a retail investor almost always buys at the opening price, not the offer price. The "35% gain" in the headline belongs to the institutions that got allocations the night before.
The Lock-Up
Shares not sold in the IPO — founders, employees, early funds — are usually barred from selling for 90 to 180 days. This is the lock-up.
Other Roads to the Market
| Route | How it works | The difference |
|---|---|---|
| Classic IPO | New shares sold through banks | Money reaches the company; banks underwrite |
| Direct listing | Existing shares simply start trading | No new money, no offer price |
| SPAC merger | Merging with a listed shell company | Fast; scrutiny is weaker than an IPO's |
The third route was fashionable in 2020–2021, and most of that era's SPACs later fell far below their offer prices — the speed and the loose scrutiny were not free.
Why New Listings Are Riskier
- Short history. Five quarters of financials don't earn the trust of five years; nobody has seen how the company behaves in a bad cycle.
- Information asymmetry. The seller has known the company for years; the buyer, for weeks. Prices get set by the better-informed side.
- The IPO window. Companies choose to list when the market is euphoric — that is, when the buyer is most optimistic. When the seller picks the timing, the price favors the seller.
- Outside the indexes. A new listing doesn't join the S&P 500 right away; the mechanical bid from index funds is absent in the early months.
Where You'll See It on This Site
The profile card on a company's page shows the IPO date — check it so you don't read a company with five quarters of history with the same confidence as one with thirty years. Newly listed symbols are reachable through search; they won't appear in the index cards, because they aren't in the indexes yet.