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IPO

A guide to every step in the IPO process explained

Ultimate guide to the IPO process: Learn everything you need to know about going public, from meeting SEC requirements to pricing your shares.

What is an IPO?

An initial public offering (IPO) is the process by which a private company “goes public” and sells new shares on the stock market. An IPO allows a company to unlock new growth and raise capital from public investors as well as provide private investors with the opportunity to exit their investment and realize a profit.

Before undergoing an IPO, a company must go through an extensive process, including meeting certain requirements as set by the Securities and Exchange Commission (SEC). The transition from private to public is demanding and incurs a lot of expenses for the issuing company—which may be why more companies have recently opted to forgo the IPO route.

Examples of recent IPOs include:

Why go public?

There are many reasons why a company might want to go public.

Raising capital for growth and expansion:
Selling shares to the public provides companies with additional capital, which can then be used to fund key business initiatives.

Exiting the company for investors:
Venture capital firms and other investors typically invest in private companies with a plan to cash out through a liquidity event, such as an IPO. After adding value, investors will then look to sell their stakes and reallocate capital to other opportunities.

Attracting and retaining top talent:
Many employees view startups as risky and would prefer to work for a public company, which can provide more job stability. As an added bonus, public companies may also offer employee stock ownership on top of their base salary.

Providing liquidity for shareholders:
Private market investments are largely illiquid. Once a company goes public, however, its shares can be traded on a stock exchange—providing investors with easier access to cash when needed.

What is the IPO process?

Here are key steps in the IPO process:

Pre-IPO planning:
This includes developing a business plan, assembling a team of advisors, and meeting with potential investors.

IPO pricing:
This involves setting the price of the shares that will be offered in the IPO.

IPO preparation:
This includes filing a registration statement with the Securities and Exchange Commission (SEC), conducting due diligence, and marketing the IPO to investors.

IPO execution:
This is when the shares are sold to investors and the company begins trading on a stock exchange.

A comprehensive look at the IPO process

Our “IPO Go-to-Market” board game outlines the full US IPO process in more detail. Select the number icons to advance your pieces across the board and gain insights into each phase of your IPO journey.

IPO process timelines and milestones

How long does an IPO take?

The IPO process is complex and the amount of time it takes depends on many factors. If the team managing the IPO is well organized, then it will typically take six to nine months for the company to complete its public debut. We’ve included a sample IPO timeline below for reference.

  • 6-12 months before IPO:
    Begin pre-IPO planning and assemble a team of advisors. The IPO team consists of executives at the issuing company, underwriters, lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts. This team is responsible for taking the company through the IPO process, handling the complex transition from private to public and every important decision that accompanies the journey.
  • 3-6 months before IPO:
    File a registration statement with the SEC and begin IPO due diligence. Due diligence is a standard process for any investment workflow—including for IPOs. In this case, it is an investigation into the private company’s financials and the potential risk factors of going public.
  • 1-3 months before IPO:
    Market the IPO to investors. The IPO roadshow is a company’s chance to market and drum up interest for shares. It is also a way to gauge demand for shares, helping the underwriters navigate the IPO process.
  • IPO week:
    Price the IPO and sell shares to investors. Pricing and valuing an IPO depends on many factors, not just the company itself. Market conditions and demand also play a strong role in the valuation. There are a couple intrinsic and relative valuation methods that are used to value a company:
    • Discounted cash flow analysis, an intrinsic valuation method that looks at the value of an investment based on its projected future cash flows.
    • Comparable public company analysis, a relative valuation method that compares publicly traded companies operating in a similar sector and location to the valuation company, usually with similar levels of revenue and market capitalization.
    • Precedent translation or private comparable analysis, a relative valuation method that looks at historical prices for completed deals within the private markets that involve similar companies.
  • IPO day:
    The company begins trading on a stock exchange.

How to prepare for an IPO

Develop a compelling business plan

Investors need to understand the unique value your company can provide. Why does your business stand out from competitors—and how large is your potential market share? With additional capital post-IPO, what is your team hoping to achieve?

Build a track record of profitability and growth

Reporting on your company’s quarterly earnings—even prior to going public—can help set expectations for future investors. The goal is to demonstrate that your company is in a strong market position and has the potential to continue its growth.

Assemble a team of experienced advisors

The success of an IPO relies heavily on choosing the right team, including your underwriters. An IPO underwriter is synonymous with the investment bank providing the underwriting service. Underwriters lead the IPO process and are chosen by the company, which could decide to hire a team of underwriters to manage different parts of the IPO.

Companies will look at a firm’s reputation, their quality of research, and industry expertise when considering investment banks to hire. After choosing an IPO underwriter, the two parties will formally agree to terms through an underwriting agreement. This includes the amount of capital the underwriter receives during the IPO, which is typically between five and eight percent.

File a registration statement with the SEC and conduct due diligence

During the due diligence workflow, the company and IPO underwriters will submit several pieces of documentation, including financial statements. The issuing company will also register with the SEC.

Here’s a quick overview of the required paperwork.

Agreeing to terms between the underwriter and issuing company:

  • Firm commitment:
    This states the underwriter will purchase all shares from the issuing company and resell them to the public.
  • Best efforts agreement:
    This states the underwriter will not guarantee a specific amount of money but will sell the shares on behalf of the company.
  • Syndicate of underwriters:
    This is an alliance between a group of investment banks to sell part of the IPO, which diversifies the risk.

The underwriter will draft the following documents:

  • Engagement letter:
    This includes a reimbursement clause, which holds the issuing company accountable to covering the underwriter’s out-of-pocket expenses. It also includes the gross spread, also known as the underwriting discount, which is intended to cover the underwriter’s fee.
  • Letter of intent:
    This states the underwriter's commitment to the company and the company’s agreement to cooperate, provide all information, and offer the underwriter a 15% overallotment option.
  • Red Herring document:
    This is a preliminary prospectus that has information on the company’s operations but doesn’t include share price or number of shares.

The SEC requires the following document:

  • S-1 registration statement:
    This is the primary document for filing the IPO. It is made up of two parts: The prospectus and private information that is not required to be disclosed to investors, but must be reported to the SEC. It also includes the expected IPO date. In essence, the S-1 filing is the first peek into the financial underbelly of a company.

Market the IPO to investors

The IPO roadshow is a promotional tour, in which the company’s key executives give presentations to potential investors and answer their questions. Traditionally, the company and underwriters travel to different locations—however, digital IPO roadshows with shorter timelines have become more common.

Frequently asked questions

Can a company IPO twice?

Yes, a company can offer subsequent market shares through a Follow-on Public Offering (FPO.) This occurs when a business raises capital in a second round of stock through either dilutive or non-dilutive options.

By its very nature, a dilutive offering, or what’s known as a stock dilution, decreases shareholder company ownership by offering additional equity. Issuing supplementary shares affects company insiders or VCs with majority stakes. To protect against control dilution, VC contracts often include an anti-dilution clause that acknowledges their status as a primary investor and safeguards their equity.

In a dilutive stock offering, a company’s board of directors increases the portion of shares that belong to all public investors to increase capital flow to the company. The income from this secondary public subsidy can be used for further growth and development or to pay off a debt.

What are some of the most noteworthy IPOs?

Uber logo

Uber

IPO date: May 10, 2019
IPO amount: $8.10B
Estimated post-valuation: $75.71B

Uber's platform provides on-demand ridesharing and food delivery services. When the company had its IPO, a total of 180 million shares were sold at a price of $45 per share. 

Snap logo

Snap

IPO date: March 2, 2017
IPO amount: $3.40B
Estimated post-valuation: $19.67B

Snap's IPO was highly anticipated and well-received, selling a total of 200 million shares at $17 per share. The company is largely known for its popular social media app, Snapchat. 

Meta logo

Meta

IPO date: May 18, 2012
IPO amount: $16.01B
Estimated post-valuation: $81.25B

The company behind the world's largest online social network went public in one of the largest tech IPOs in recent history. Given its potential for growth in advertising revenue, there was strong interest from investors at the time. 

What are the costs and fees associated with an IPO?

Given the number of parties involved in an IPO, the costs can add up quickly—from marketing and advertising fees to investment banking fees, accounting fees, and regulatory fees. Prior to taking this step, consider whether your company can truly incur these expenses, or if you may benefit from an alternate approach at this time.

Are there alternatives to a traditional IPO?

Direct listing vs. IPO

In a direct listing (also known as a direct public offering), a private company will go public by selling shares to investors on the stock exchanges without an IPO. Direct listings eliminate the need for an IPO roadshow or IPO underwriter, which saves the company time and money. Historically, this method has been used primarily by budget-conscious small businesses seeking to avoid the abundance of fees associated with traditional IPOs.

Additionally, direct listings give shareholders the opportunity to sell their stake in the company as soon as it goes public, without experiencing the holding period they normally would with an IPO. This can also help avoid the dilution that issuing new shares could cause. We explore the differences between a direct listing and an IPO in more depth in another article.

SPAC vs. IPO

A special purpose acquisition company (SPAC) is a publicly-traded buyout company that raises capital through an IPO in order to purchase or gain a controlling stake in a company. When a company gets acquired by a SPAC, it goes public without paying for an IPO because all fees and underwriting costs are covered before the target company ever gets involved.

When the coronavirus pandemic rattled many IPO plans, SPACs kept going public. One reason is that a SPAC’s value is tied to how much it raised from investors, so it is less susceptible to the ups and downs of the market. We explore the differences between SPACs, traditional IPOs and direct listings in another article.

Traditional IPO vs. SPAC vs. DPO

Traditional IPO

  • Process by which a private company goes public
  • Offers new shares to the public
  • Raises new capital from public investors
  • Requires an IPO roadshow and underwriters, which can be costly

SPAC

  • Is a publicly traded buyout company
  • Raises capital via IPO
  • Looks to buy a private company that fits investment strategy
  • Buys private company, which then goes public without paying for IPO

Direct listing or DPO

  • Process by which a private company goes public
  • Sells shares directly to the public without intermediaries
  • Eliminates need for an IPO roadshow, investment banks or underwriters
  • No lock-up or holding periods for investors

Additional resources on IPOs

IPO and S1 Navigator: Essential Data and Valuation Trends
Dive deep into the essential data and valuation trends to chart a course for what is ahead

PitchBook Analyst Note: Analyzing the IPO Market Outlook
Examine the VC-backed IPO outlook as of Q3 2023