What Is an IPO?

An IPO, or initial public offering, is the term for the first time that a private company sells shares of its stock to the public on a stock exchange. The event means that the company has transitioned from private to public ownership, which is why an IPO is often referred to as going public. Its an opportunity for a company to raise significant capital—to help it fund new growth, for example, or pay off debt. And it allows private investors, like founders, angel investors, and family members, to cash out, often realizing gains on their investment.

An IPO does not just happen overnight. Its the culmination of a process during which an underwriting investment bank or group of banks helps the company prepare for the IPO, files paperwork and financial disclosures with the Securities and Exchange Commission (SEC), creates a draft prospectus, takes it on a road show to drum up interest, and much more.

Key Takeaways 

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.

 Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO. 

IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market. 

Companies hire investment banks to market, gauge demand, set the IPO price and date, and more. 

An IPO can be seen as an exit strategy for the companies founders and early investors, realizing the full profit from their private investment.

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