Initial Public Offerings (IPOs)

IPOs are an invaluable tool for companies to raise capital. Understanding a company’s debut on public markets is important to properly understanding how to invest in it.

Frequently Asked Questions
  • What is an IPO?

    An IPO is when a company issues stock to be traded for the first time on public markets. After an IPO a company that was previously privately held becomes a publicly held one that anyone with enough money can purchase shares of.

  • What are the advantages and disadvantages of having an IPO?

    An IPO allows a company to raise a large amount of money by selling issued shares to the general public. Far more people with far more total money can invest in public markets and so companies can generally raise significantly more money through IPOs than through private equity, in which shares are sold to specific accredited investors, not on the open market. This lets the company tap into a large amount of money that can be used to grow and improve its business, while early investors can usually make a profit by selling the shares they purchased when the company was still in its earlier stages. However, when a company goes public, they are then answerable to a much larger group of shareholders.

  • How are IPOs priced?

    IPOs technically have two prices, their offering price, and opening price. The offering price is the price at which shares are sold to institutional investors and brokers just before a company begins publicly trading. The process of figuring out an offering price is called book building, and involves underwriters gauging demand for the company’s stock by soliciting bids from institutional investors. The opening price is the price shares begin trading at on an exchange and is determined by compiling the bids of investors on the exchanges.

  • What is the difference between an IPO and direct listing?

    An IPO is when a company issues new shares which an underwriter helps to sell and market. A direct listing is when a company lists existing shares on an exchange to be sold without an underwriter.

Key Terms

Explore IPOs

What a Roadshow Is and How It Creates a Successful IPO
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The Two Types of IPOs
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Direct Public Offering (DPO): Definition, How It Works, Examples
NEW YORK, NEW YORK - MAY 10: Traders work on the floor of the New York Stock Exchange (NYSE) before the Opening Bell at the NYSE as the ride-hailing company Uber makes its highly anticipated initial public offering (IPO) on May 10, 2019 in New York City. Uber will start trading on the New York Stock Exchange after raising $8.1 billion in the biggest U.S. IPO in five years.Thousands of Uber and other app based drivers protested around the country on Wednesday to demand better pay and working conditions including sick leave, overtime and a minimum wage.
How to Analyze an IPO and Whether to Buy
Oversubscribed: Definition, Example, Costs & Benefits
IPO-Initial Public Offering written on a blackboard.
Pre-IPO Placement: Definition, How It Works, Example
What Is a Back Door Listing?
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Where Are They Now? Checking in on 5 Big IPOs
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What Are the Advantages and Disadvantages of a Company Going Public?
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Assimilation
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10 of the Most Famous Public Companies That Went Private
IPO vs. Staying Private: What's the Difference?
Seal
How an Initial Public Offering (IPO) Is Priced
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What's an IPO Lockup? Definition, Purpose, Expiration Strategies
What Were the "Browser Wars"?
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New Issue: Definition, How It Works in Offerings, and Example
Underpricing: Definition, How It Works, and Why It's Used
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The History of Etsy's Stock Price Since Its IPO
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Best Efforts: Underwriting Definition With Example
What "Going Public" Means
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Keeping Control of Your Business After the IPO
Backup
Backup
Going Public
Hot IPO
Reallowance
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Freed Up
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Devolvement
Market Out Clause
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How Much Is Dropbox Worth?
Forced Initial Public Offering
IPO (Initial public offering) wording with calculator, ballpoint pen and pair of reading glasses.
Offering: Definition, Types, and Examples in Finance
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Flotation
Do Underwriters Guarantee to Sell an Entire IPO Issue?
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Preliminary Prospectus
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Stabilizing Bid
Capital Base
Friendly Hands
Friendly Hands
What Are the Three Stages of the IPO Life Cycle?
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Spinning Definition
Initial Public Offering (IPO)
Initial Public Offering (IPO): What It Is and How It Works
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Freeriding: Definition, How It Works, Legality, and Example
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Venture Capital-Backed IPO Definition
Laddered Bond Portfolio
Laddering
Hot Issue
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Public Offering Price (POP)
Minority IPO
Western Account
Undivided Account
Reverse Greenshoe Option
Primary Distribution
Back-Door Listing
What Does the Underwriter Do in a New Stock Offering?
New York Stock Exchange with the Wall St street sign in front
IPOs for Beginners