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An Initial Public Offering (IPO) is the process by which a privately owned company sells shares of itself to the public for the first time. When the transaction closes, the company's ownership transitions from a closed group of founders, employees, and private investors to any member of the public who can buy shares on a stock exchange. The company is now publicly traded.
Companies go public to raise capital for expansion, pay down debt, give early investors a liquidity event, and raise their public profile. After the IPO, shares trade freely in the open market at whatever price buyers and sellers agree on.
The company hires one or more investment banks to serve as underwriters. The underwriter advises on valuation, manages the regulatory filing, coordinates a group of broker-dealers called the syndicate to sell shares, and sets the final offering price on the night before trading begins.
Think of the underwriter like a real estate agent for a major property sale: they determine the listing price, market it to buyers, and execute the transaction.
The lead underwriter submits an S-1 Registration Statement to the Securities and Exchange Commission containing detailed financial disclosures. The SEC reviews the filing during the waiting period before granting approval. Section 5 of the Securities Act governs what the company may communicate during this period.
Once the SEC is reviewing the S-1, the company's management and underwriters go on a roadshow, traveling to meet major institutional investors to pitch the investment thesis and gauge demand. The book of interest from these meetings directly influences where the underwriter sets the final IPO price.
If demand is strong, the underwriter may price at or above the top of the initial range. If demand is weak, they price lower. The NYSE requires that post-IPO shares have a minimum market value of $40 million for continued listing eligibility.
IPOs are systematically underpriced on average. This means the stock often rises on the first day of trading, which creates the impression that the offering price was too low. Academics debate whether this is deliberate by underwriters to generate excitement or simply the result of investor overreaction to new information.
Google tested an alternative in its 2004 IPO by using a Dutch Auction, where potential investors submitted bid prices and all shares went to the lowest price that sold the entire offering. Boston Beer Company and Interactive Brokers have also used this structure.
Insiders, including founders and early investors, are typically subject to a lock-up agreement that prevents them from selling shares for 90 to 180 days after the IPO. This protects the market from a flood of shares immediately after the offering.
Fidelity notes that brokerage firms may also restrict retail investors who flip IPO shares within the first few days from participating in future offerings. Flipping IPO allocations is actively discouraged across the industry.
A direct listing allows a company to list existing shares on a stock exchange without underwriters, without issuing new shares, and without a lockup period. Spotify and Slack used this approach. The company raises no new capital but existing shareholders can sell immediately. This suits companies that do not need the cash but want their shares to be publicly tradable.
With deep roots in traditional finance and the digital asset industry, Acquire.Fi operates as a specialist M&A advisory firm. Coverage spans M&A, secondaries, OTC, and capital markets advisory across digital assets and frontier tech. Decades of combined experience across every stage of the deal lifecycle.
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