Full Definition
An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time on a stock exchange. It's one of the primary "exit" events for startup investors, allowing them to sell their shares on the public market.
IPO Process
- Select investment banks as underwriters
- File S-1 registration with the SEC
- Conduct investor roadshow presentations
- Set IPO price and allocate shares
- Begin trading on the stock exchange
Alternatives to Traditional IPOs
- Direct Listing: Company sells existing shares directly without underwriters (Spotify, Slack)
- SPAC: Merging with a Special Purpose Acquisition Company for a faster path to public markets
IPO Readiness
Companies typically IPO when they have $100M+ in revenue, predictable growth, strong governance, and the ability to meet quarterly reporting requirements.
The IPO Process
Real-World Example
A startup that raised $200M over five VC rounds files for an IPO at a $5B valuation, offering 10% of its shares to public investors.
Frequently Asked Questions
What does IPO stand for?
How much revenue do you need to IPO?
What is the difference between an IPO and a direct listing?
Related Terms
A planned approach for founders and investors to realize returns on their investment in a company.
A later-stage funding round for companies looking to scale aggressively, acquire competitors, or prepare for IPO.
A form of private equity financing provided by firms to startups with high growth potential.
The right of preferred shareholders to be paid before common shareholders in a liquidation event.
A marketplace where existing shareholders can sell their private company shares to other investors before an IPO.
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