A information to each step within the IPO course of

What’s an IPO?

An preliminary public providing (IPO) is the method by which a non-public firm “goes public” and sells new shares on the inventory market. An IPO permits an organization to unlock new progress and lift capital from public buyers in addition to present non-public buyers with the chance to exit their funding and notice a revenue.

Earlier than present process an IPO, an organization should undergo an intensive IPO course of, together with assembly sure necessities as set by the Securities and Trade Fee (SEC).

Our “IPO Go-to-Market” board sport under outlines the steps concerned within the IPO course of at a excessive degree earlier than diving deeper into incessantly requested questions for a extra complete look.  Choose the quantity icons to advance your items throughout the board and achieve insights into every step on the highway to your IPO.

Alternate options to a standard IPO

In recent times, extra corporations have chosen to forgo the IPO route, and as a substitute, opted for various strategies to itemizing on the general public market.

Direct itemizing vs IPO

In a direct itemizing (often known as a direct public providing), a non-public firm will go public by promoting shares to buyers on the inventory exchanges with out an IPO. Direct listings remove the necessity for an IPO roadshow or IPO underwriter, which saves the corporate money and time. Traditionally, this technique has been used primarily by budget-conscious small companies searching for to keep away from the abundance of charges related to conventional IPOs.

Moreover, direct listings give shareholders the chance to promote their stake within the firm as quickly because it goes public, with out experiencing the holding interval they usually would with an IPO. This may additionally assist keep away from the dilution that issuing new shares may trigger. We discover the variations between a direct itemizing and an IPO in additional depth in one other article.


A particular goal acquisition firm (SPAC) is a publicly-traded buyout firm that raises capital by means of an IPO to be able to buy or achieve a controlling stake in an organization. When an organization will get acquired by a SPAC, it goes public with out paying for an IPO as a result of all charges and underwriting prices are lined earlier than the goal firm ever will get concerned.

When the coronavirus pandemic rattled many IPO plans, SPACs stored going public. One motive is {that a} SPAC’s worth is tied to how a lot it raised from buyers, so it is much less prone to the ups and downs of the market. We discover the variations between SPACs, conventional IPOs and direct listings in one other article.

Conventional IPO vs SPAC vs DPO

Conventional IPO

  • Course of by which a non-public firm goes public
  • Provides new shares to the general public
  • Raises new capital from public buyers
  • Requires an IPO roadshow and underwriters, which may be expensive


  • Is a publicly traded buyout firm
  • Raises capital by way of IPO
  • Seems to be to purchase a non-public firm that matches funding technique
  • Buys non-public firm, which then goes public with out paying for IPO

Direct itemizing or DPO

  • Course of by which a non-public firm goes public
  • Sells shares on to the general public with out intermediaries
  • Eliminates want for an IPO roadshow, funding banks or underwriters
  • No lock-up or holding durations for buyers

Fast FAQ on the IPO course of

How lengthy does it take to finish the IPO course of?

The IPO course of is advanced and the period of time it takes will depend on many elements. If the staff managing the IPO is nicely organized, then it can sometimes take six to 9 months for the corporate to finish its public debut. The transition from non-public to public is a demanding course of and incurs lots of bills for the issuing firm.

What’s an underwriter and the way do you select one to work with?

An IPO underwriter is synonymous with the funding financial institution offering the underwriting service. Underwriters lead the IPO course of and are chosen by the corporate, which may resolve to rent a staff of underwriters to handle completely different components of the IPO.

The success of an IPO depends closely on selecting the best underwriter. Firms will take a look at a agency’s repute, their high quality of analysis and business experience when contemplating funding banks to work with. After selecting an IPO underwriter, the 2 events will formally comply with phrases by means of an underwriting settlement. This contains the quantity of capital the underwriter receives in the course of the IPO, which is often between 5 and eight %.

Who is part of the IPO staff?

The IPO staff consists of executives on the issuing firm, underwriters, attorneys, licensed public accountants (CPAs) and Securities and Trade Fee (SEC) specialists. This staff is accountable for taking the corporate by means of the IPO course of, dealing with the advanced transition from non-public to public and each essential choice that accompanies the journey.

What’s IPO due diligence?

Due diligence is a regular course of for any funding workflow. For IPOs, it’s an investigation into the non-public firm’s financials and the potential threat elements of going public. Throughout this workflow, the corporate and IPO underwriters will fill out the required paperwork. The issuing firm may even register with the SEC.

What paperwork must be crammed out for the IPO course of?

Firms are required to fill out and submit a number of items of documentation, together with monetary statements, all through the IPO journey. Right here’s a fast overview of every:

Agreeing to phrases with underwriter and issuing firm:  
  • Agency dedication: States the underwriter will buy all shares from the issuing firm and resell them to the general public.
  • Finest efforts settlement: States the underwriter won’t assure a particular sum of money however will promote the share on behalf of the corporate.
  • Syndicate of underwriters: An alliance between a gaggle of funding banks to promote a part of the IPO, which diversifies the chance.
The underwriter will draft:  
  • Engagement letter: Consists of reimbursement clause, which holds the issuing firm accountable to protecting the underwriter’s out-of-pocket bills. Additionally contains the gross unfold, often known as the underwriting low cost, which is meant to cowl the underwriter’s payment.
  • Letter of intent: States underwriters dedication to the corporate and the corporate’s settlement to cooperate, present all data, and provide the underwriter a 15% overallotment possibility.
  • Purple Herring doc: A preliminary prospectus that has data on the corporate’s operations, however doesn’t embody share worth or variety of shares.
Required documentation by the SEC:  
  • S-1 registration assertion: The first doc for submitting the IPO. It’s made up of two components: The prospectus and personal data that isn’t required to be disclosed to buyers, however have to be reported to the SEC. It additionally contains the anticipated IPO date. In essence, the S-1 submitting is the primary peek into the monetary underbelly of an organization.


What’s an IPO roadshow?

The IPO roadshow is an organization’s likelihood to market and drum up curiosity for shares. Additionally it is a technique to gauge demand for shares, serving to the underwriters navigate the IPO course of. Historically, the corporate and underwriters journey to completely different areas—nonetheless, digital roadshows grew to become the norm in the course of the COVID-19 pandemic and have the potential to grow to be the usual shifting ahead.

Can an organization IPO twice?

Sure, an organization can provide subsequent market share by means of a Comply with-on Public Providing (FPO.) This happens when a enterprise raises capital in a second spherical of inventory by means of both dilutive or non-dilutive choices.

By its very nature, a dilutive providing, or what’s identified as a inventory dilution decreases shareholder firm possession by providing extra fairness. Issuing supplementary shares impacts firm insiders or VCs with majority stakes. To guard in opposition to management dilution, VC contracts typically embody an anti-dilution clause that acknowledges their standing as a major investor and safeguards their fairness.

In a dilutive inventory providing, an organization’s board of administrators will increase the portion of shares that belong to all public buyers to extend capital circulate to the corporate. The earnings from this secondary public subsidy can be utilized for additional progress and growth or to repay a debt.

How are IPOs valued and priced?

Pricing and valuing an IPO relies upon on many elements, not simply the corporate itself. Market circumstances and demand additionally play a powerful position within the valuation. There are a pair intrinsic and relative valuation strategies which can be used to worth an organization:

  • Discounted money circulate evaluation, an intrinsic valuation technique that appears on the worth of an funding based mostly on its projected future money flows.
  • Comparable public firm evaluation, a relative valuation technique that compares publicly traded corporations working in the same sector and site to the valuation firm, often with comparable ranges of income and market capitalization.
  • Precedent translation or non-public comparable evaluation, a relative valuation technique that appears at historic costs for accomplished offers throughout the non-public markets that contain comparable corporations.

Extra on public listings in VC and PE

Why do corporations go for a DPO as a substitute of an IPO?
Be taught concerning the variations and benefits of direct listings versus IPOs

Why corporations valued $5B+ could select direct listings
Learn PitchBook Analyst Word: Client Unicorns Make Strikes for 2021 Direct Listings

Uncover how venture-backed IPOs faired in This autumn of 2021
Try PitchBook’s Analyst Word: Index of Enterprise-Backed IPOs 

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