What an IPO actually is

An initial public offering, or IPO, is the moment a private company first sells its shares to the public. Before an IPO, a company is owned by its founders, its employees and private backers such as venture capital or private equity firms. After it, anyone with a brokerage account can buy and sell its stock on an exchange such as the New York Stock Exchange or Nasdaq.

Companies go public for two main reasons: to raise money, and to give early shareholders a way to sell. The cash raised can fund growth, pay down debt or build a reserve. Just as important, a public listing turns shares that were hard to sell into something that trades every second the market is open.

The steps, from decision to first trade

1. Hiring the banks

A company that wants to list hires investment banks as underwriters. The lead bank, often called the bookrunner, advises on timing, price and structure, and takes on the job of finding buyers. In return the banks earn a fee, usually a percentage of the money raised.

2. The filing

In the United States the company files a registration document, the S-1, with the Securities and Exchange Commission. The S-1 is the prospectus: it sets out the business, the risks, the financials and how the shares will be sold. Since the JOBS Act of 2012, most firms file this confidentially first, which is why you often read that a company has filed confidentially months before any shares trade. The full document becomes public only weeks before the listing. Recent examples include Anthropic's reported confidential filing and OpenAI's reported plan to list in 2027.

3. The roadshow and book-building

With the prospectus public, executives and bankers go on a roadshow, pitching the company to large institutional investors: pension funds, mutual funds and hedge funds. As they go, the banks build a book of orders, gauging how many shares investors want and at what price. This is where the real price discovery happens, and it is why the range printed in the prospectus often moves before the deal prices.

4. Pricing

The night before trading begins, the company and its banks agree a final offer price. If demand has been strong, the price can land above the original range; if it has been weak, below it, or the deal can be pulled altogether. The shares are then allocated, mostly to the institutions that placed orders.

5. The opening trade

The next morning the stock opens for public trading. The opening price is set by supply and demand on the exchange, not by the company, and it can sit well above the offer price. That gap is the famous first-day pop. The pop rewards the investors who received shares at the offer price. Everyone buying once the stock is trading pays the market price.

Who actually gets the offer price

This is the part that trips up new investors. The offer price, the one you read in the headlines, goes almost entirely to institutional investors and a small number of favoured clients. By the time an ordinary investor can place an order, the stock is usually trading in the aftermarket at the opening price, which already reflects the demand the roadshow uncovered. That is why buying the IPO is, for most people, really buying on day one at a higher price.

What to watch before you buy

• Lock-ups. Insiders usually agree not to sell for 90 to 180 days. When that lock-up expires, a wave of shares can reach the market and weigh on the price.
• What the money is for. A prospectus that raises cash to fund growth reads very differently from one that mainly lets early backers sell.
• Profitability. Many companies list while still lossmaking. That is not automatically bad, but it changes the risk you are taking.
• The price, not the brand. A great company can be a poor investment at the wrong price. The offer values the whole business, so check what you are paying for it.

The bottom line

An IPO is a financing event and a selling event wrapped into one listing. Understanding who sets the price, who receives the discount and when insiders can sell tells you far more than the headline valuation. If you want to see which companies are heading to market, our IPO and listings calendar tracks upcoming deals with sourced dates.