An IPO is the day a private company first sells shares to the public. It turns founders and early backers into sellers and lets anyone become a part-owner.
An IPO — initial public offering — is the first time a private company sells its shares to ordinary investors on a stock exchange. Before the IPO, ownership is held by founders, employees and private investors. After it, shares trade freely and the company is “public.”
The headline reason is raising capital: selling new shares brings in cash to expand, repay debt or fund research without a loan. An IPO also gives early investors and employees a way to cash out their stakes, raises the company's profile, and creates a tradeable currency (its shares) for future acquisitions.
Investment banks (underwriters) study demand and the company's finances, publish a prospectus, and gauge interest from big institutions in a process called book-building. They then set an offer price. On the first trading day, supply and demand take over — which is why some IPOs “pop” well above the offer price and others fall below it.
Lock-up periods: insiders usually agree not to sell for 90–180 days after the IPO. When that lock-up expires, a wave of new selling can pressure the price.
IPOs are exciting but risky. There's little public trading history, hype can inflate the first-day price, and ordinary investors often can't buy at the offer price — only after it has already jumped. Many high-profile IPOs trade below their debut price a year later.
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Not advice: educational content only. For authoritative basics see the SEC at investor.gov.
Related reading: what is a stock, how the stock market works, and risk vs reward explained.
IPO stands for initial public offering — the first sale of a private company's shares to the public on a stock exchange.
Usually not. The offer price is mostly reserved for large institutions. Most individual investors can only buy once shares start trading, which may be higher or lower than the offer price.
If demand far exceeds the shares available at the offer price, the open-market price jumps. This first-day pop benefits those who got the offer price, not later buyers.
A lock-up is an agreement, often 90–180 days, that stops insiders from selling shares right after the IPO. When it expires, extra selling can push the price down.