The conventional IPO process
An IPO converts a private company into a public reporting company and sells shares through a registered offering. The company selects underwriters and advisers, prepares a registration statement, responds to SEC comments, develops investor materials, markets the offering, sets price and allocation, lists on an exchange, and begins public reporting.
The SEC reviews disclosure for compliance; it doesn't approve the investment or guarantee the business.
Primary and secondary shares
Primary shares are newly issued by the company and raise capital for the issuer. Secondary shares are sold by existing holders. An offering can contain both. Primary issuance increases shares and can dilute existing holders, although the company receives cash. Secondary sales change ownership but don't provide proceeds to the company except in specific structures.
Capitalization and dilution
The prospectus should show pre- and post-offering capitalization, use of proceeds, option and award dilution, convertibles, preferred-stock conversion, and selling shareholders. Model the fully diluted share count, not only the shares offered.
Valuation and pricing
Bankers and the issuer use public comparables, DCF, private-market history, investor feedback, growth, profitability, float, deal size, and market conditions. The final IPO price balances capital raised, investor demand, aftermarket stability, issuer objectives, and underwriter judgment. It is a transaction price, not a pure intrinsic-value conclusion.
The roadshow and bookbuilding
Management presents the business and answers investor questions. Underwriters gather indications of interest and build an order book. Demand quality, price sensitivity, investor type, concentration, and market movement affect pricing and allocation. The precise process depends on jurisdiction and offering structure.
Underwriting economics and stabilization
The underwriting discount compensates banks for distribution and risk. The overallotment option can support additional issuance and stabilization mechanics. Lockups restrict sales by insiders for a period, subject to terms and waivers. Read the underwriting section rather than relying on general descriptions.
Direct listings and follow-on offerings
A direct listing can provide public trading without a conventional firm-commitment IPO structure, though structures have evolved and can include primary capital. Follow-on offerings raise additional equity or allow holders to sell after the company is public. At-the-market programs permit sales over time under specified conditions.
SPAC and de-SPAC transactions
A SPAC raises capital as a shell company and later seeks a business combination. The de-SPAC process has distinct sponsor economics, redemptions, PIPE financing, dilution, projections, conflicts, and shareholder votes. SEC rules adopted in 2024 added disclosure and liability-related requirements intended to align investor protections more closely with traditional public offerings.
Settlement and public-market mechanics
Most U.S. securities transactions moved to T+1 settlement in May 2024. This affects post-trade processing, allocations, affirmation, funding, and operational timelines, although issuance-specific settlement details can vary.
Reading an S-1 or F-1
Focus on business and segments, use of proceeds, capitalization, dilution, risk factors, management, principal shareholders, related-party transactions, financial statements, MD&A, stock compensation, underwriting, lockups, and material contracts. Compare non-GAAP or operating metrics with the financial statements and definitions.