IPO Process

The most common way of offering portions of a private corporation to the general population is in a new stock issuance

Author: Christopher Haynes
Christopher Haynes
Christopher Haynes
Asset Management | Investment Banking

Chris currently works as an investment associate with Ascension Ventures, a strategic healthcare venture fund that invests on behalf of thirteen of the nation's leading health systems with $88 billion in combined operating revenue. Previously, Chris served as an investment analyst with New Holland Capital, a hedge fund-of-funds asset management firm with $20 billion under management, and as an investment banking analyst in SunTrust Robinson Humphrey's Financial Sponsor Group.

Chris graduated Magna Cum Laude from the University of Florida with a Bachelor of Arts in Economics and earned a Master of Finance (MSF) from the Olin School of Business at Washington University in St. Louis.

Reviewed By: Kevin Henderson
Kevin Henderson
Kevin Henderson
Private Equity | Corporate Finance

Kevin is currently the Head of Execution and a Vice President at Ion Pacific, a merchant bank and asset manager based Hong Kong that invests in the technology sector globally. Prior to joining Ion Pacific, Kevin was a Vice President at Accordion Partners, a consulting firm that works with management teams at portfolio companies of leading private equity firms.

Previously, he was an Associate in the Power, Energy, and Infrastructure Investment Banking group at Lazard in New York where he completed numerous M&A transactions and advised corporate clients on a range of financial and strategic issues. Kevin began his career in corporate finance roles at Enbridge Inc. in Canada. During his time at Enbridge Kevin worked across the finance function gaining experience in treasury, corporate planning, and investor relations.

Kevin holds an MBA from Harvard Business School, a Bachelor of Commerce Degree from Queen's University and is a CFA Charterholder.

Last Updated:September 5, 2023

What Is The IPO Process?

An Initial Public Offering (IPO) is the most common way of offering portions of a private corporation to the general population in a new stock issuance. Organizations should meet prerequisites by Exchanges and the Securities and Exchange Commission (SEC) to hold an IPO.

Initial public offerings give organizations a chance to gain capital by offering shares through the primary market.

An Initial Public Offering suggests the technique engaged with offering segments of a privately owned business to everybody in another stock issuance. It allows a company to raise capital from public financial benefactors.

The change from a private to a public company can be a critical time for private financial supporters to recognize gains from their investment as it ordinarily incorporates an offer premium for current private financial backers.

The initial public offering is the offering of securities to the general public in the primary market. 

In the wake of its listing on the stock exchange, the organization turns into a public corporation and the shares of the firm can be exchanged freely in the open market. The organization which issues shares to the general public is the issuer.

Key Takeaways

  • An Initial Public Offering (IPO) is the process through which a private company offers shares to the public for the first time, allowing the company to raise capital from public investors.
  • IPOs provide companies with an opportunity to gain access to significant funding through the sale of shares in the primary market.
  • Going public can be a significant milestone for a company, allowing private investors to realize gains on their investment and providing increased transparency and credibility to attract future funding.
  • The IPO process involves choosing underwriters, conducting due diligence, forming a team of professionals, preparing and submitting documents, marketing and promoting the offering, finalizing the offer price, and ultimately listing the shares on a stock exchange.
  • IPOs have advantages such as increased visibility, access to a larger investor base, and enhanced transparency, but they also come with disadvantages, including high costs, fluctuating stock prices, detailed disclosures, and potential governance challenges.

Origination of IPO

Initial Public Offerings have been a trendy expression on Wall Street and among financial backers for quite a long time. The Dutch are credited with leading the first IPO by offering portions (shares) of the Dutch East India Company to the general population.

Since then, public offerings have been utilized as a way for companies to raise capital from common public and financial backers through the issuance of public share possession.

As the years progressed, IPOs have been known for upswings and downtrends in issuance. Individual areas additionally experience upturns and downtrends in issuance because of development and different other financial variables. 

Tech IPOs increased at the level of the dot-com blast as new businesses without zero profits or losses raced to list themselves on the stock exchanges.

The 2008 economic recession brought about a year with a very low number of floating. Even after the downfall of the 2008 financial crisis, Initial offerings came to a halt, and till some years later the number of initial offers remained low.

Lately, an enormous piece of the IPO buzz has moved to the accentuation of supposed unicorns — new private organizations that have acclaimed private valuations of more than $1 billion.

Financial investors and the media enthusiastically surmise these companies and their decision to present a public offer or stay private.

How does IPO work?

Before an initial public offer, a company is considered to be a private organization.

A privately-owned company has been created with a modest number of investors that include founders, family, and financial investors like private equity firms, venture capitalists, and angel investors.

A public offer is a meaningful step forward for an association as it gives the organization permission to gather a tremendous amount of money. This enables the organization to develop and grow at a fast pace. 

The extended straightforwardness and offer listing trustworthiness can in like manner be a component in helping it with getting better terms while searching for funds as well.

Exactly when a company reaches a stage in its improvement collaboration where it acknowledges it is completely mature enough to abide by the SEC rules along with the benefits and commitments to public financial investors, it will begin to proceed with the process of going public.

Normally, this phase of development will happen when an organization has arrived at a private valuation of around $1 billion, also called unicorn status. 

Be that as it may, privately owned businesses at different valuations with solid fundamentals and demonstrated benefit potential can likewise fit the bill for an initial public float, contingent upon the market rivalry and their capacity to meet post-listing necessities.

Initial public offering shares of an organization are estimated by guaranteeing a reasonable level of investment. 

At the point when an organization goes public, the recently claimed private investors/ shareholders convert to public shareholders, and the current private investors' shares become worth the public exchange cost. 

Share endorsing can likewise incorporate extraordinary arrangements for private to public share ownership.

Meanwhile, the public market opens up a tremendous opportunity for an enormous number of financial investors to buy a stake in the association and contribute income to a company's financial backers' worth.

The general population contains anybody with attentiveness in putting money into the organization. All around, the number of shares a company sells and the price for which the shares are sold is the making factors for the organization's new financial backers worth regard.

Investors' value addresses shares claimed by financial backers when it is both private and public, yet with a float, the investors' value increments altogether with cash from the essential issuance.

Overview of the IPO Process

It thoroughly comprises two parts. The first is the pre-advertising period of the public offering, while the second is the offer itself. At the point when an organization is keen on a public float, it will publicize to underwriters by requesting private offers or it can likewise offer a public statement to produce interest.

The underwriters lead the whole cycle and are picked by the organization. An organization might pick one or a few underwriters to oversee various pieces of the IPO cycle cooperatively. 

The underwriters are associated with each part of:

Several steps involved in the process are:

1. Choosing underwriters

Underwriters are the investment banks that a company chooses to proceed with the process of its public offer. underwriters handle all the related to the public offering of a company, it starts from documentation to promotion to deciding the final valuation for the offer. 

The company has the power to choose from several underwriters based on their proposals. Underwriters are the ones who decide when the company should float its initial public offer based on various market and macroeconomic conditions. 

A company can have more than one underwriter based on its requirements.

2. Due diligence

Due diligence is the most common way of social affair significant data about a business or resources. Due diligence should be done on the issuer, its business, and some other elements associated with giving offers under the IPO. 


The expected level of investment interaction will be composed and done by the underwriters, alongside drafting the prospectus for the offer.

3. Formation of team

The formation is one of the significant steps of the initial public offering process. Teams include underwriters, lawyers, accountants, advertising agencies, and Securities and Exchange Commission (SEC) experts.

4. Preparation and submission of documents

Next in the process comes documentation. The team brings together all the information needed for documentation. The S-1 Registration Statement is the essential IPO recording document. It has two sections — the prospectus and the filing information held privately.

The S-1 incorporates fundamental data about the tentative date of the filing. It will be reexamined frequently all through the pre-IPO process. The included prospectus is likewise reconsidered persistently.

5. Marketing & promotion 

Promoting materials are made for pre-showcasing of the new stock issuance. Financiers and leaders market the offer issuance to appraise requests and lay out the last contribution cost. 

Guarantors can make amendments to their monetary investigation all through the showcasing system. 

This can incorporate changing the offer price or issuance date as they see fit.

Organizations do whatever it takes to meet explicit public offer contribution prerequisites. Organizations should stick to both trade posting necessities and SEC prerequisites for public organizations.

6. Value finalization

After the SEC gives a nod to the documents filed, the team finalizes the offer price and the number of shares to be offered. The decision of percentage dilution is based upon investor demand, the company’s financials, and market conditions. 


The date to float IPO is also finalized after the SEC’s approval.

7. Going public

The organization issues shares on the finalized date. Capital from the primary issuance to investors is received as money and recorded as investors' value on the balance sheet. In this manner, the balance sheet share value becomes subject to the organization's investors' value per share valuation exhaustively.

8. Post-IPO process

After the stock gets listed on the stock exchanges, there is very high volatility in the stock in the initial days. The underwriters of the issue can influence the price for a period of 25-days by trading heavily. The techniques used for influencing the stock price are green shoe and lock-up period.

Purpose of IPO Process

It is a gathering of pledges technique utilized by large organizations, in which the organization offers its portions to the general population interestingly. Following a public float, the organization's shares are exchanged on a stock exchange

A portion of the fundamental inspirations for undertaking an IPO include: raising capital from the offer of the offers, giving liquidity to organization originators and early financial backers, and exploiting a higher valuation.

Organizations can raise extra capital by offering shares to the general public. The cash received might be utilized to grow the business, reserve innovative work, or pay off obligations. Using venture capitalists, private financial backers, or bank credits, for raising capital might be excessively costly.

Opening up to the public can give organizations immense exposure. Organizations might need the standing and gravitas that frequently accompanies being a public organization, which may likewise assist them with getting better terms from banks.

Alternatives of IPO

The alternatives of IPO are as follows:

1. Direct Listing

In a direct listing (also called a direct public offering), a privately owned business will open up to the public by offering shares to financial backers on the stock exchanges without a public offer. 

Direct listings dispense with the requirement for a roadshow or an underwriter, which saves the organization time and cash. By and large, this strategy has been utilized by small budget-conscious companies trying to keep away from the overflow of expenses related to normal listings.

Moreover, direct postings offer investors the chance to sell their stake in the organization when it opens up to the world, without encountering the holding period they typically would with an IPO. This can likewise assist with staying away from the stake dilution that new shares issue could cause.


A Special Purpose Acquisition Company (SPAC) is a public buyout organization that raises capital through a public float to buy or acquire a controlling stake in an organization. 

Whenever an organization gets acquired by a SPAC, it opens up to the general public without paying for an IPO since all charges and guaranteeing costs are covered before the target organization at any point reaches out.

When the Covid pandemic shook numerous listing plans, SPACs continued to go public. One reason is that a SPAC's worth is attached to the amount it raised from financial backers, so it's less vulnerable to the promising and less promising times of the market.

SPACs are also called blank check organizations because the target organization is obscure at the time of the IPO. After the SPAC opens up to the public, it normally has about two years to procure at least one organization. 

At the point when an organization gets acquired by a SPAC, it opens up to the public without paying for the offered expenses. Notwithstanding the minimal expense advantage, SPACs can be hazardous because financial backers reserve the privilege to pull out their investments if they're unsatisfied with the target organization. 

Even though the supervisory group has the impetus to recognize the best acquisition (they in all actuality do hold a 20 percent locater's expense all things considered), they bear the gamble of losing financial backers. 

On the off chance that such a large number of investors withdraw their capital, the SPAC might pull out of the deal.

Advantages and disadvantages of IPO

The advantages are as follows:

  • It increases the visibility of a company which increases the company’s public image, and exposure and hence helps in increasing its sales and profits.

  • Transparency of a company is increased in terms of quarterly reporting which in turn helps it in easily taking loans.

  • It increases the investor base of a company by which it can raise a large sum of money easily.

Whereas, the disadvantages are:

  • One of the major disadvantages is that they are expensive and the costs of maintaining a public company are very high.

  • Sometimes the price of a stock fluctuates despite a good financial performance which is very distracting.

  • Very detailed disclosures are also a major disadvantage for public companies because they need to reveal their business techniques and secrets which may help competitors.

  • Governance of the board of directors can also be problematic for public companies. 

Researched and authored by Kavya Sharma | LinkedIn

Edited by Colt DiGiovanni | LinkedIn

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