What is an IPO?
IPO (Initial Public Offering) is the process where a company offers its shares to the public for the first time and begins trading on a stock exchange.
The process
- Decision and preparation — The board decides to explore a listing. Advisors (investment banks) are hired.
- Due diligence and prospectus — The company is thoroughly reviewed and a prospectus is prepared.
- Pricing — Banks and the company determine a price range based on demand.
- Roadshow — Management presents the company to institutional investors.
- Book-building — Investors indicate interest and desired price.
- Listing — The stock begins trading on the exchange.
Timeline
The process typically takes 6-12 months from decision to first trading day.
What does it mean for early investors?
An IPO gives early investors an exit opportunity. However, lock-up periods often restrict selling during the first months.
Summary
An IPO is the culmination of a company's journey as a private company. It requires extensive preparation but provides access to capital markets and liquidity.