What Is an IPO?
An initial public offering is the first time a company sells its shares to public investors under a registration statement filed with the Securities and Exchange Commission. Two things change at once: the company gains access to public capital, and it takes on the disclosure and reporting obligations of a public company. The shares then trade on an exchange, where anyone can buy them.
Three parts of that sentence carry the weight. "Sells shares" — someone is selling, and who that someone is changes the character of the deal. "To public investors" — a legal status, not a description of who ends up owning the stock. "Under a registration statement" — the document that makes the sale lawful, and the reason an IPO produces hundreds of pages of disclosure that a private financing round never does.
Key facts
| Stands for | Initial public offering |
| Core US filing | Form S-1 (domestic issuers) or Form F-1 (foreign issuers) |
| Final pricing document | Form 424B4, the final prospectus |
| Regulator | US Securities and Exchange Commission |
| Typical execution time | Roughly 16–20 weeks or more from organisational meeting to closing, per the NYSE's IPO guide, with readiness work before that |
| Who buys at the offer price | Mostly institutions, by underwriter allocation |
| Where to read the terms | The prospectus cover page, free on SEC EDGAR |
| What it is not | An SEC endorsement, a guarantee of a price rise, or the only route to being publicly traded |
Is an IPO the same as a stock market listing?
No. An offering is a sale of securities; a listing is admission to trade on an exchange. A conventional IPO does both at once, which is why the words get used interchangeably. They come apart constantly, and every apparent exception to "what an IPO is" is one of these:
- A direct listing is a listing without a traditional underwritten offering. Historically these raised no new capital at all; NYSE and Nasdaq rules now also permit direct listings that do raise primary capital, so the old shorthand that "a direct listing means the company raises no money" is no longer a safe definition.
- A Regulation A offering is a public offering under a lighter-touch regime, which may or may not come with an exchange listing.
- A SPAC merger takes a company public without that company running an offering of its own.
- An uplisting moves an already-public company from over-the-counter trading onto an exchange, with no offering required.
It is also why published IPO counts disagree: the same year can plausibly contain 90 first listings or 350, depending which combinations of offering and listing are counted. That is an undeclared definition rather than sloppiness. Ours is stated in our methodology.
What changes when a company goes public?
Very little about the business itself. A company that was badly run on Monday is badly run on Tuesday. What changes is who owns it, how easily those owners can sell, and what the company is legally obliged to tell you from then on.
Before the offering, shares are held by founders, employees, and whichever venture or private equity funds backed the company. Those shares are restricted — they cannot be freely resold to the public, because they were never registered with the SEC. Trading them means finding a buyer privately, getting the company's consent, and accepting whatever price that narrow market produces. The IPO registers a block of shares so they can be sold and resold freely.
Four other things change permanently:
Reporting. Quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K for material events, proxy statements, and Section 16 filings when insiders trade. Foreign private issuers report on Forms 20-F and 6-K instead.
Governance. Exchange rules require board independence, an audit committee of independent directors, a compensation committee, and written governance policies. Companies with concentrated voting control can qualify as "controlled companies" and claim certain exemptions, which must be disclosed.
Internal controls. Management must assess internal control over financial reporting. An auditor attestation is required, though emerging growth companies and smaller reporting companies receive phased-in relief.
Legal exposure. Public statements become actionable. Section 11 of the Securities Act imposes liability for material misstatements in the registration statement, under a notably demanding standard.
Who sells the shares, and who gets the money?
There are two sources of shares in an IPO, and the difference determines where the cash lands. Both can happen in the same deal.
Primary shares are newly created by the company and sold by the company. The proceeds, net of fees, go to the company's balance sheet. This is the part that "raises capital."
Secondary shares are existing shares sold by existing holders — founders, early employees, venture funds, private equity sponsors. The proceeds go to those sellers, not to the company.
An offering can be all primary, all secondary, or any mix, and the prospectus says explicitly which. A deal that is heavily secondary is not raising money to grow the business; it is providing an exit. Neither is disqualifying, but they are different transactions wearing the same name, and a headline reading "raised $500 million" frequently conflates them.
Where to find it: the prospectus cover page states the split, and the Use of Proceeds section states plainly that the company will not receive proceeds from shares sold by selling stockholders. See primary vs. secondary shares.
Where does the money actually go?
Not all of it reaches the company, even for a purely primary offering. Take a hypothetical sale of 20 million new shares at $25:
| Line | Amount |
|---|---|
| Gross proceeds (20m × $25) | $500,000,000 |
| Less underwriting discount at 5.5% | ($27,500,000) |
| Less other offering expenses | ($6,000,000) |
| Net proceeds to the company | $466,500,000 |
The underwriting discount is the gap between what investors pay and what the company receives. It is disclosed on the prospectus cover in a three-column table: price to public, underwriting discounts and commissions, and proceeds to the issuer before expenses.
You will often read that underwriters take 7%. That figure is a real and well-documented historical regularity in the US market, concentrated in smaller and mid-sized offerings — but it is not a current universal fee, and large deals frequently price well below it.
If this deal also included 8 million secondary shares, those would raise a further $200 million gross, all of it for the selling holders and none of it for the company. Read alongside how much an IPO costs.
Who gets shares at the IPO price?
Mostly not retail investors.
Shares at the offer price are allocated by the underwriters, not bought on an exchange. The underwriters decide who receives them and how many, and they overwhelmingly favour the institutional clients they want long-term relationships with — mutual funds, pension funds, hedge funds, sovereign wealth funds. Allocation is discretionary, it is not pro-rata, and it is not disclosed.
Large deals increasingly also feature cornerstone or anchor investors who commit in advance to a stated dollar amount, which is disclosed in the prospectus. Many companies run a directed share programme setting aside shares for employees, customers, or people connected to the business. FINRA rules separately restrict allocations to certain "restricted persons," largely industry insiders.
Some brokerages run retail IPO access programmes, and several newer platforms have built a business on widening access. But the realistic position for most individual investors is that the first opportunity to buy is on the open market after trading begins — at whatever price the market opens at. See IPO allocation and how to buy an IPO.
Why does an IPO often open above its offer price?
Because the two prices are set by different mechanisms, hours apart, and nothing forces them to agree.
The offer price is set by the company and its underwriters the evening before trading, based on demand gathered during bookbuilding. The opening price is produced the next morning by an auction on the exchange, which matches all the buy and sell interest that has accumulated overnight. When demand exceeds the shares available at the offer price, the open is higher — sometimes dramatically. Figma priced at $33 in July 2025 and closed its first day at $115.50.
That gap is the "IPO pop," and it is easy to misread. A stock that opens 40% above its offer price did not create 40% of value that morning. It means the shares were sold to allocated investors at a price the open market immediately disagreed with — a transfer from the company and its selling shareholders to whoever received an allocation. A large pop is routinely described as a successful IPO. From the issuer's side it is money left on the table.
More detail in offer price vs. opening price and why do IPOs pop?.
The filings, in order
An IPO is a sequence of documents, each of which tells you something the previous one could not. All of them are public on SEC EDGAR the moment they are filed, free, with no account required.
Form S-1 — the registration statement
The S-1 is the company's first public filing and the most substantive document in the process. It exists to make the offering lawful: the SEC's disclosure regime works on the principle that a company may sell securities to the public provided it tells the public what it is selling.
It typically runs 200 to 400 pages and contains the business description, several years of audited financial statements, risk factors, the ownership table, executive compensation, related-party transactions, and the intended use of proceeds.
Critically, the initial S-1 carries no price and no final share count, or only a placeholder. The company is registering the right to sell; the terms come later. Many issuers now begin with a confidential draft registration statement, so the first public S-1 may already have been through rounds of SEC review.
Form S-1/A — the amendments
SEC staff review the S-1 for disclosure compliance and send comment letters. The company responds by filing amended versions, marked S-1/A. Several rounds are normal.
Amendments are where the story moves. An S-1/A is where the price range first appears, where it gets revised up or down, where updated quarterly financials land, and where risk-factor language gets added under regulatory pressure. A company that quietly cuts the top of its range two weeks before pricing has told you something no press release will.
Form 424B4 — the final prospectus
The 424B4 is filed after pricing. It is the S-1 in final form with the blanks filled in: the actual offer price, the actual number of shares, the actual underwriting discount, the actual use of proceeds, the actual dilution. For a reader, this is the definitive document. Everything before it was provisional.
Around these sit a Form 8-A registering the shares on the exchange, and afterwards the ordinary rhythm of a public company — 10-K, 10-Q and 8-K. A company that abandons the process files a Form RW to withdraw, which is also public.
Walk through the whole sequence in the IPO filing lifecycle, or compare the two key documents directly in S-1 vs. 424B4.
How is the offer price set?
Not calculated — discovered, through a process called bookbuilding.
The company hires investment banks as underwriters. The lead — the "lead-left bookrunner" — is responsible for finding buyers. After the S-1 is on file, management and the bankers run a roadshow, a week to ten days of meetings with institutional investors, who indicate how many shares they would buy and at what price. Those responses build the book. A deep book pushes the range up; a thin one cuts it, shrinks the deal, or kills it. Either move is publicly visible in an amended filing.
On pricing night the company and the banks set one price. In a firm commitment underwriting, the standard structure for a traditional IPO, the underwriters buy the whole offering from the company at that price less the discount and resell it to their clients — so the company's proceeds are fixed at that moment and the underwriters carry the resale risk.
One further mechanism matters. The underwriters usually hold an over-allotment option, almost always called the greenshoe after the Green Shoe Manufacturing Company's 1963 IPO, the first to use it. It lets them buy additional shares at the offer price — FINRA Rule 5110 treats an option above 15% of the base deal as an unreasonable underwriting term, and the common 30-day exercise window is a term disclosed in the prospectus rather than a statutory period. It exists so underwriters can sell slightly more stock than the deal size and then either buy in the open market to support a weak debut or exercise the option on a strong one. Separately, Regulation M governs what price support is permitted at all. When you read a deal size, check whether the figure includes the greenshoe: the two numbers differ by up to 15%, and both get quoted.
Full treatment in how is an IPO priced? and IPO bookbuilding.
Why do companies go public?
The textbook answer is "to raise capital." True, but incomplete — a company can raise capital privately, and increasingly does. Private markets are deep enough that staying private for a decade is now unremarkable rather than a sign of weakness.
The reasons that actually drive the decision: liquidity for employees holding equity they cannot sell and for venture funds with a finite life that must eventually return cash; acquisition currency, because a stock with an observable price is a usable form of payment; a price that exists, produced continuously by a market rather than negotiated with the last investor; and credibility, since audited financials and mandatory disclosure are a form of proof to enterprise buyers and regulators.
Against all of that: cost, permanent disclosure that hands competitors a detailed map of your economics, quarterly scrutiny, and a valuation the market now sets. The calculation has genuinely shifted over the past fifteen years, which is why the typical company going public today is older and larger than its equivalent in 2000. Full discussion in why do companies go public?.
Lock-ups, and the cliff nobody watches
Insiders do not get to sell on day one. Underwriters require a lock-up agreement — customarily around 180 days — during which officers, directors and pre-IPO shareholders cannot sell.
This matters for a structural reason. In the months after an IPO the tradeable supply of stock is only the portion sold in the offering, which is often 10–20% of shares outstanding. The float is small. When the lock-up expires, the supply available to trade can multiply several times over in a single day.
Lock-up terms are disclosed in the Underwriting section of the prospectus, and they are not always a plain 180 days. Many agreements carry staggered tranches, or early-release triggers tied to the share price or to an earnings date. Reading the actual language is worth the ten minutes. See the IPO lock-up period.
What an IPO is not
It is not an SEC approval. The SEC reviews the registration statement for disclosure compliance and declares it effective. It does not pass on the merits of the investment. Every prospectus says so on its cover, in the required legend. See the SEC does not approve IPOs.
It is not evidence of profitability. No such requirement exists. A large share of IPO issuers are unprofitable at listing, and in some periods most have been.
It is not a sign the company is new. The opposite, increasingly. Companies stay private far longer than in the 1990s, and the typical issuer is a mature business.
"Raised $500 million" is not $500 million in the bank. Only if every share was primary, and only before the underwriting discount and expenses.
IPOs do not always go up. First-day averages are positive, which is a statement about a distribution, not about any individual deal. Plenty of offerings break issue on day one.
How to read a prospectus efficiently
If you are looking at a company that has filed, this is the fastest useful path through several hundred pages:
- Use of proceeds. Primary or secondary? If the company is not receiving the money, understand who is.
- The summary financial data table. Three to five years in one place — revenue growth, gross margin, operating loss, cash burn.
- Risk factors, selectively. Most are boilerplate drafted to transfer liability. The useful ones are specific: a named customer concentration, a pending regulatory action, a going-concern qualification. Read for specificity and skip the rest.
- Principal and selling stockholders. Who owns what, and what happens to control after the offering. Dual-class structures live here.
- Management's Discussion and Analysis. The company explaining its own numbers. Compare what it emphasises against what the statements show.
The prospectus is written to be legally complete, not to be clear. It is still the best single source on a company that exists at that moment. A section-by-section walkthrough is in how to read an IPO prospectus.
Where this appears in a filing
| Concept | Form | Section |
|---|---|---|
| Offer price, share count, fee split | 424B4 | Cover page |
| Primary vs. secondary split | S-1 / 424B4 | Cover page; Use of Proceeds; Principal and Selling Stockholders |
| What the company will do with the money | S-1 / 424B4 | Use of Proceeds |
| Lock-up terms | S-1 / 424B4 | Underwriting |
| Over-allotment option | S-1 / 424B4 | Cover page; Underwriting |
| Share classes and voting | S-1 / 424B4 | Description of Capital Stock |
| Dilution to new investors | S-1 / 424B4 | Dilution |
How we use these documents
The IPO Radar reads these filings from SEC EDGAR as they are published and produces a brief for each priced offering — the business, the offering structure, the financial trajectory, and what a careful reader should track. Every number in a brief is checked against the filing it came from before it publishes.
You can read the latest in Research, or see how the analysis is produced.
Related
How does an IPO work? · IPO process: step by step · How long does an IPO take? · Why do companies go public? · What is an S-1? · What is a prospectus? · Primary vs. secondary shares · The history of the IPO · Glossary
Sources
- Securities Act of 1933; Securities Exchange Act of 1934 (SEC)
- SEC, Form S-1 and Form F-1 requirements; Regulation S-K Item 501, prospectus cover page
- SEC, Investor Bulletin: Investing in an IPO — on the SEC's role in review and effectiveness
- NYSE IPO Guide — execution timeline
- FINRA Rule 5110 — underwriting terms and the over-allotment option
- Regulation M — stabilisation and price support
- Chen and Ritter, The Seven Percent Solution, Journal of Finance (2000) — on the gross spread
- Issuer final prospectuses filed on Form 424B4, SEC EDGAR
- The IPO Radar filing database — see Methodology