When a company goes public, it offers shares to outside investors for the first time through an initial public offering (IPO) and begins trading on a stock exchange.
What it means
Going public means a private company sells shares to the public for the first time in an initial public offering (IPO) and lists on an exchange such as the NYSE or Nasdaq.
Why
- Raise capital.
- Give early investors liquidity.
- Boost visibility.
Steps
- Hire underwriters.
- File an S-1 with the SEC.
- Roadshow.
- Price shares and list.
Alternatives
Direct listing or a SPAC.
Cost
Underwriting fees are around 4% to 7%.
IPO process timeline and figures
A typical US IPO takes 6 to 12 months of preparation. The company hires underwriters, files a registration statement (Form S-1) with the SEC, and goes through review, often with several rounds of comments. A roadshow of 1 to 2 weeks presents to institutional investors, and pricing is set the night before trading starts.
- Underwriting fees for large IPOs commonly run about 3 to 7 percent of proceeds, with around 7 percent typical for smaller deals.
- Lock-up periods usually bar insiders from selling for 90 to 180 days after listing.
- The company must then file annual (10-K) and quarterly (10-Q) reports and comply with Sarbanes-Oxley rules.
- Examples: Saudi Aramco raised 25.6 billion USD in its 2019 IPO, among the largest ever, and Facebook raised about 16 billion USD in 2012.
Alternatives
A direct listing sells existing shares without raising new capital, as Spotify did in 2018. A SPAC merger takes a company public through a shell firm, a route that boomed in 2020 to 2021 and cooled after regulators tightened rules. Initial public offerings expose companies to market volatility, but give access to capital and liquidity for early investors. Investors should know that first-day pops do not guarantee long-term returns.
IPO steps
Going public means a private company sells shares to the public on an exchange. It hires underwriters, files a registration statement (Form S-1) with the SEC, completes a roadshow and sets a price. The process often takes 6 to 12 months of preparation. Companies pay underwriting fees of around 3.5 to 7 percent of proceeds.
Alternatives
Direct listings let companies sell existing shares without raising new money, as Spotify did in 2018. SPACs offer another route, and their popularity peaked in 2021. Public companies face ongoing reporting and compliance costs.
IPO timeline and costs
The process involves selecting underwriters, drafting the S-1, SEC review that typically takes about 3 to 4 months, a roadshow of 1 to 2 weeks and pricing on the night before trading. Legal, accounting and filing costs run into millions of dollars. In 2021, US IPOs raised about 142 billion USD in a record year, falling sharply in 2022.
After listing
Insiders face lock up periods of 90 to 180 days. Public firms file quarterly 10-Q and annual 10-K reports, and must follow Sarbanes-Oxley rules. Stock price depends on expectations. Retail investors can buy through brokerages once trading starts, though first day pops are often captured by institutions.
Based on data from the US Securities and Exchange Commission and Renaissance Capital
