What is an IPO | Top 3 things to know about IPO

Hi, Welcome to another informatory blog. Today we will discuss some basics about IPO. We will go through the process for IPO, its advantages, disadvantages and various other aspects.

What is an IPO ?
What is an IPO ?

What is an IPO | IPO Meaning

In today’s ever-changing financial world, one important milestone for privately owned companies seeking broader horizons is the Initial Public Offering (IPO). An IPO marks the exciting transition from a private entity to a publicly traded company. In this article, we’ll take a closer look at IPOs, their historical significance, how they function, their pros and cons, alternative routes to going public and methods for evaluating their performance.

Let’s Begin with an Example

Imagine a thriving tech startup that has experienced remarkable growth and caught the attention of investors. To fuel further expansion, the company decides to go public. They hire an investment bank to guide them through the IPO process. During the IPO, the company offers a portion of its ownership to the public by issuing shares. Both institutional and individual investors have the opportunity to purchase these shares, effectively becoming part-owners of the company. Through the IPO, the company raises substantial capital, which can be used for research and development, market expansion, or paying off debts.

What is IPO Process | Steps

The IPO process typically involves several key steps:

1. Selecting Underwriters

The company hires investment banks or underwriters to manage the offering. These underwriters help determine the offering price, market the shares and facilitate the listing process.

2. Preparation and Filing

The company prepares a registration statement, known as the prospectus, which provides detailed information about its operations, finances, risks and future prospects. This document is then filed with the appropriate regulatory authority, such as the Securities and Exchange Commission (SEC) in the United States.

3. Roadshow and Pricing

The underwriters organize a roadshow to showcase the IPO to potential investors. During this roadshow, the company’s management team presents the business model and growth prospects. Based on investor feedback, the underwriters determine the final offering price.

4. Allocation and Trading

Once the IPO is priced, shares are allocated to institutional investors and individual investors who participated in the offering. The shares are then listed on a stock exchange, allowing trading to commence.

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Advantages of IPOs:

  1. Access to Capital: An IPO offers companies the opportunity to raise significant funds from a wide range of investors, providing the means for expansion and growth initiatives.
  2. Increased Visibility and Prestige: Going public enhances the company’s reputation and visibility, potentially attracting customers, strategic partners and talented employees.
  3. Liquidity for Shareholders: Existing shareholders, such as founders, employees and early investors, can sell their shares, allowing them to convert their investments into cash.

Disadvantages of IPOs:

  1. Regulatory Requirements and Compliance: Public companies must comply with extensive reporting and disclosure requirements, which can be time-consuming and expensive.
  2. Loss of Control: As new shareholders enter the picture, founders and existing shareholders may experience a reduced level of control over the company.
  3. Short-term Pressure: Publicly traded companies face scrutiny from shareholders and analysts, which can sometimes lead to short-term decision-making instead of focusing on long-term strategies.

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Alternatives to IPOs

While IPOs are a popular method of going public, there are alternative routes for companies to access the public markets, such as:

  1. Direct Listings: In a direct listing, a company lists its shares on a stock exchange without raising capital. Existing shareholders have the opportunity to sell their shares directly to the public.
  2. SPACs: Special Purpose Acquisition Companies (SPACs) are shell companies formed with the purpose of acquiring a private company and taking it public. This method offers a faster route to the public markets compared to a traditional IPO.

Evaluating IPO Performance:

To evaluate the performance of an IPO, investors consider various factors, including:

  1. Price Performance: Analyzing the change in the share price since the IPO date and comparing it to market indices and industry peers.
  2. Financial Performance: Assessing the company’s financial results, revenue growth, profitability and ability to execute its business strategy.
  3. Market Sentiment: Monitoring analyst recommendations, investor sentiment and news coverage to gauge the market’s perception of the company.


IPOs have significantly influenced the financial landscape by allowing companies to access public markets and raise capital for growth. They provide opportunities for investors to participate in the success of promising companies. However, going public through an IPO also brings challenges and responsibilities. By understanding the process, advantages, disadvantages and alternative paths, investors and companies can make informed decisions and successfully navigate the exciting journey to public ownership.

IPO related FAQs

What Is the Purpose of an Initial Public Offering?

An IPO is a method for large companies to raise capital by selling shares to the public for the first time. It provides liquidity to founders and early investors while taking advantage of a higher valuation. The main goals of an IPO are capital raising, liquidity provision and accessing a broader investor base.

Can Anybody Invest in an IPO?

Not all interested investors may have the opportunity to participate in an IPO due to high demand. Access to IPO shares may be limited to larger clients of brokerage firms. Another option is investing through mutual funds or investment vehicles specializing in IPOs.

Is an IPO a Good Investment?

IPOs attract attention, often resulting in volatile price movements. While they can produce significant gains, they can also lead to losses. Evaluating an IPO requires assessing the prospectus, financial situation and risk tolerance. Each IPO should be judged individually.

How Is an IPO Priced?

Underwriting banks determine the initial value of IPO shares based on the company’s fundamentals and growth prospects. Comparable companies may be used as benchmarks. Supply and demand dynamics leading up to the IPO also influence pricing.

Top 10 Companies that had their IPO in 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020

Top 10 Companies that had their IPO in 2012
Top 10 Companies that had their IPO in 2013
Top 10 Companies that had their IPO in 2014
Top 10 Companies that had their IPO in 2015
Top 10 Companies that had their IPO in 2016
Top 10 Companies that had their IPO in 2017
Top 10 Companies that had their IPO in 2018
Top 10 Companies that had their IPO in 2019
Top 10 Companies that had their IPO in 2020

Also Read – Lucid Motors Stock Price Prediction 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030

Disclaimer– This article is only for educational purposes. It is not investing advice. Please concern your financial advisor before any investment.

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