The IPO process

An initial public offering (IPO) is the first time a private company sells shares to the public and lists them on a stock exchange like the NYSE or Nasdaq. One day the company is owned by a handful of founders, employees, and early investors. A few months later anyone with a brokerage app can buy a piece of it. That transition is one of the biggest events in a company's life, and it is a core product of the bank's equity business, so interviewers expect you to walk the whole process cleanly.

Underneath all the machinery, an IPO has one objective, and holding it in your head makes every step after it make sense: sell the fewest shares at the highest price. The most money raised for the least ownership given up.

Every share sold is a permanent slice of the company handed to somebody else. So the company is not trying to sell as much stock as it can, and it is not trying to engineer the biggest first-day pop. It is trying to hit the number it needs while diluting the existing owners as little as possible.

Why a company goes public

Three reasons, and a good answer names all three. First, raising growth capital: the company sells new shares and the cash funds expansion, a factory, a hiring push. Second, giving early investors and employees a way to cash out, since a private share is nearly impossible to sell but a public one trades every day. Third, a public stock becomes a currency: a listed company can pay for acquisitions in its own shares instead of scarce cash.

Going public is not free. The company now reports its numbers to regulators every quarter, answers to public shareholders, and lives with a stock price that moves on every headline. Companies do it anyway because the capital and the liquidity are worth the scrutiny.

The process, start to finish

The sequence is what gets tested, so learn it in order.

Hire the underwriters. The company picks its underwriters, the investment banks that will structure, market, and sell the deal. One or two lead the deal as bookrunners; others join a syndicate to help place the shares. This is equity capital markets (ECM) work: the desk that raises money by selling stock.

File the S-1. The company files a registration document called the S-1 with the SEC. It is a thick disclosure of the business, the risks, the financials, and how the money will be used. The SEC reviews it and sends back comments until it is cleared.

Run the roadshow. The management team and bankers go on a roadshow, a week or two of back-to-back meetings pitching the story to large institutional investors: mutual funds, pension funds, hedge funds. The goal is to build interest ahead of pricing.

Build the book. As the roadshow runs, the underwriters gather orders in a process called book-building. Investors say how many shares they want and at what price. That book of demand tells the bankers where the deal can actually clear.

Price it, then trade. The night before trading opens, the underwriters and company set the final offer price off the book. The next morning the shares start trading on the exchange, and from that point the market sets the price.