IPO (Initial Public Offering)
The process of a private company selling shares to the public for the first time and listing on a stock exchange.
An IPO is when a company sells newly issued shares to public investors for the first time, typically through underwriting investment banks that market the deal, set the offering price, and facilitate the exchange listing. It converts private venture-backed equity into publicly tradable stock and provides the company's first major liquidity event for founders, employees, and early investors, subject to a lockup period.
The traditional IPO process includes a roadshow (management presenting to institutional investors), a priced offering the night before trading begins, and a first day of trading where the stock finds its real market price, which can differ meaningfully from the IPO price. Companies going public also take on substantially heavier ongoing disclosure, governance, and compliance obligations than as a private company.
The IPO is the most famous exit in venture and one of the rarer ones — far more venture-backed companies are acquired than go public. IPO readiness is a long game: audited financials, public-company governance, and an investor story that can survive quarterly scrutiny all take time to build.
Going public reorders a company's life around quarterly earnings, public disclosure, and a stock price that becomes a daily referendum on management. The listing isn't the finish line; the quarters after it are where the real test begins.
A first-day 'pop' is common because underwriters deliberately price shares below expected demand to make sure the deal is fully subscribed and to reward the institutions anchoring the book. A very large pop means the company left money on the table — the gain went to IPO-day buyers, not the company.
Hypothetically, a company prices 10,000,000 shares at $15, raising $150M of gross proceeds. If the underwriting discount is 6%, the banks keep $9M and the company nets about $141M before legal, audit, and listing fees.
Prepare for the operational and cultural shift of being public at least a year before filing — quarterly earnings pressure, public scrutiny of every metric, and stricter governance requirements change how a company operates in ways many founders underestimate until they're living it.
How long is the typical IPO lockup period?
Commonly 180 days, during which insiders (founders, employees, early investors) are contractually restricted from selling shares, though some deals have used shorter or staggered lockup structures.
Why do IPO stocks often 'pop' on the first day?
Underwriters typically price the offering below expected demand to ensure it's fully subscribed and to reward the institutional investors who anchor the order book. A modest pop with stable trading is generally a better outcome for the issuer than a huge one.
Does going public mean insiders can sell right away?
Usually not. In a traditional IPO, insiders are typically bound by a lockup agreement with the underwriters for a set period after the listing before they can sell.
What's the difference between an IPO and a direct listing?
Whether the company raises money. An IPO sells newly issued stock at a price set with the underwriters; a standard direct listing just lets current holders start selling. The Direct Listing entry covers how its opening price is found and the variants that do raise capital.
Related terms
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