There are a lot of company types in the US, as for the ones that offer their shares to the public are called public companies and their first sale of their share is what is mostly known as an initial public offering or IPO. The concept is quite simple, the company submit the offering with the SEC and set the price with the banks and get listed. In 2025 there were 90 IPOs raising $38.97 billion.
In this article you will learn the IPO process a company must undergo and how to understand anything during that process
What Is an IPO?
An IPO is the process of a private company selling their shares to public investors for the first time which means their company becomes listed on the stock exchanges, this transition also known as 'go public' and has become a trend alongside the rising of start-ups trend.
During this transition there are two major things that change inside the company. The company becomes listed on the stock exchange which makes their shares tradeable to retail investors, so everyone can theoretically own shares of the company. The second thing is due to its 'publicity' the company must be transparent and have a continuous obligation to the SEC and their shareholders
As for the technicality of the trades, the IPO itself falls under primary market transaction, which means every money invested from buyers moves directly to the company. And every trade after primary market transactions goes to the secondary market, where the shares are traded between investors and nothing will happen to the company. So, the US listed stock price you currently see on the stock exchange is only its secondary market price.
How Does an IPO Work?
During the IPO process a company must undergo 4 processes from filing with the SEC to setting the price. This process usually takes several months and each step can generate a significant headlines for prospective investors.
1. Filing with the SEC
The company's first step is filing the S-1 registration statement form with the SEC, which contains some of the company's sensitive info such as financial information, the business model, ownership structure, use of proceeds, and risk factors. These documents are required to demonstrate initial transparency to the public and once its filed, anyone can have access to it. But, a company may opt for "confidentially filed" filings meaning they can submit the documents privately first and release them to the public at a later date.
2. Underwriters and the price range
In the next step, the company will appoint an investment bank to do these transactions and become the underwriter, which means they agree to buy the shares from the company and resell them to the public, with the primary risk that market demand may fall short of expectations.
Then an indicative share price range is published by the banks and the company in the revised filing documents. The price is still just an estimate not a fixed one and can always be revised before the final pricing. This method is known as "raised its range" and was recently implemented by the company Cerebras by lifting its price range more than once before finalizing the final price above that range.
3. The roadshow and book-building
This roadshow stage is where company management and underwriters pitch their new stock to institutional investors over roughly a week while with the purposes of generating demand, discovering their prices and sharing the company background stories.
Then comes book-building, during this stage, the initial share price is presented as a price range. Investors can indicate their interest in purchasing shares by specifying a price of their choice within that predetermined range which creates market demands and helps the underwriter to determine the final prices.
After those stages, if the demand exceeds the number of shares offered during the preceding stage, it would result in oversubscription which means it can increase the final prices and cut individual shares allocation. Cerebras was reported as more than 20 times oversubscribed, while SpaceX roughly four times oversubscribed on their IPO.
4. Pricing and the first trade
The final step is setting up the final price, which is usually announced in the evening before listing. Previously allocated investors can buy at that price and the company will receive the proceeds directly. while as for the shares will be traded the next day with a different price which is determined by the opening auction that gathers all the trade interests that built up overnight
The initial price and the first traded price numbers can be significantly different. This gap will be one of the most important things about buying IPO stocks .
Why Do Companies Go Public?
The reasons for a company's IPO may vary, but mainly to raise its capital to give an early shareholder a route to sell or commonly known as an "exit plan".
And here are the trade-offs an IPO listing involves.
Area | What the company gains | What it takes on |
Capital | Access to public markets, and the ability to return for more | Underwriting fees and the cost of the process |
Existing shareholders | A route for employees and early backers to sell | Lock-up restrictions delaying that route |
Acquisitions | Listed shares usable as payment | A visible share price that moves on every deal |
Reporting | Profile and credibility with customers | Continuous disclosure obligations to the SEC |
Control | A broader shareholder base | Public scrutiny of quarterly results |
The volume of a company that went public is never a stable one from year to year based on Jay Ritter's dataset at the University of Florida records which covers operating companies only,
Year | IPOs | Funds Raised |
2021 | 311 | $119.36bn |
2022 | 38 | $6.99bn |
2023 | 54 | $11.92bn |
2024 | 72 | $20.49bn |
2025 | 90 | $38.97bn |
What Does an IPO Mean if You Want to Buy?
Buying an IPO stocks mostly translates as buying it on the secondary market after with the opening auction price and not with the "headline prices".
Here is the illustration of US IPOs in 2026 in very different ways
Company | Offer price | Opening trade | First-day close | Offer to open |
Cerebras (CBRS), 14 May 2026 | $185.00 | $350.00 | $311.07 | +89.2% |
SpaceX (SPCX), 12 Jun 2026 | $135.00 | $150.00 | $160.95 | +11.1% |
1. The offer price is not the price you pay
Take an example from Cerebras and SpaceX IPO
The outcome of those two IPO stocks varies wildly so that's why understanding the IPO mechanism and its underlying is more valuable than just tracking the final outcome as an investor.
2. Who gets an allocation
While for the most portion of allocation will go to institutional investors, the retail investors will get a portion from brokers with their own specific qualifications. But for the SpaceX IPO, it was unique, their large share is offered for retail investors rather than institutional investors.
3. The lock-up period
There is also a period where it restricts early investors and shareholders from selling their shares after the company is listed, usually six months to a year. SpaceX used 366 days for Musk and insiders, with a staggered 180-day arrangement for other pre-IPO investors.
IPO, Direct Listing, or SPAC: What Is the Difference?
An IPO is one of three routes to a public listing. What separates them is whether new shares are sold and who sets the first price.
Route | How it works | New capital raised? | Main trade-off |
IPO | New shares sold to investors via underwriters, priced the night before listing | Yes | Underwriting fees, and a price set by negotiation rather than by the market |
Direct listing | Existing shares listed directly, with the opening auction setting the first price | Usually no | No underwriter price support and no guaranteed demand |
SPAC merger | A private company merges with an already-listed shell company | Varies, depending on redemptions | Dilution from sponsor shares, and a different disclosure path |
What Are the Risks of Buying an IPO Stocks?
Newly listed shares carry risks that established ones do not, and four are worth knowing before reading any IPO headline.
1. Short public track record
A limited track record of the newly listed company is one of the blockers that investors have for these IPO stocks. They only have the company prospectus which is produced by the company that is selling the stocks and no audited results, analyst coverage, or a performance guidance.
2. High volatility in early trading
The trading price discovery in the early trading sessions is really volatile because there is no trading supply demand reference to anchor it, take the Cerebras IPO as an example, the price jumps 89% from the initial offering price at the opening session and falls 11% at the closing session
3. Lock-up expiry supply
Lock-up expiry puts shares on the market that previously could not be sold. Even though the date is disclosed in advance it can't tell how many holders choose to sell, or how the price responds.
4. Governance and share structure
Dual-class share structures are common in founder-led listings, and the class sold to the public often carries fewer votes. A buyer of the public class therefore holds economic exposure with limited influence. That is a structural feature disclosed in the prospectus, not a defect.
Conclusion
You can now read an IPO headline and know which number you are looking at. Understanding the mechanism, filing, underwriting, roadshow, and pricing, matters more than chasing the opening-day pop, since that gap between offer price and first trade is exactly where newly listed stocks carry the most risk: thin trading history, no analyst coverage, and volatility with nothing yet anchoring it.
