Bookbuilding
Definition
Bookbuilding is the process by which underwriters build a demand curve for an offering: during the roadshow, institutional investors submit indications of interest — how many shares they want and, sometimes, at what price — which the bookrunners aggregate into the order book.
The book tells the syndicate how many times oversubscribed the deal is and where demand is price-sensitive, driving the final pricing decision (within or outside the marketed range) and the allocation of shares among investors. Underwriters favor high-quality, long-term holders in allocations to support stable aftermarket trading.
Bookbuilding is the dominant IPO pricing mechanism in the US; the main alternatives are auctions (rare) and direct listings, where price discovery happens on the exchange instead.
Why interviewers ask
It is the answer to 'how does an IPO actually get priced?' — a common follow-up designed to see whether you know that price comes from real investor demand, not a banker's model alone. Mentioning oversubscription, price sensitivity in the book, and allocation strategy elevates a standard process answer.
Related terms
Interviews don't test definitions — they test recall under pressure.
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