IPO (Initial Public Offering)
Definition
An initial public offering is a private company's first sale of shares to the public, after which the stock lists on an exchange. Companies IPO to raise growth capital, provide liquidity for founders and early investors, create acquisition currency, and raise their profile; shares sold can be primary (new shares, proceeds to the company) and/or secondary (existing holders selling).
The standard US process: select underwriters (a 'bake-off'), conduct due diligence, file a registration statement (Form S-1) with the SEC — often confidentially at first — respond to SEC comments, market the deal via a roadshow while bookbuilding, price the offering the night before trading, and begin trading, typically with a greenshoe to stabilize the aftermarket and a lockup on insiders.
IPOs are typically underwritten on a firm-commitment basis: the syndicate buys the shares from the issuer at the offer price less the gross spread and resells them to investors.
Why interviewers ask
ECM and generalist interviews love 'walk me through an IPO process' — it tests whether you understand what banks actually do. Follow-ups probe the pieces: why firms go public, primary vs secondary shares, what the S-1 is, why IPOs are often priced at a discount (frequently framed as ~10–15%, though it varies), and what the greenshoe and lockup do.
Related terms
Interviews don't test definitions — they test recall under pressure.
Drill 1,500+ real questions with spaced repetition. Free to start — 10 reps a day on the house.