What is an IPO?

When a private company with limited investors goes public, it gets listed on a stock exchange for a much larger number of investors to buy shares. This process is called an IPO or Initial Public Offering. There are several steps involved when a company decides to go for an IPO:

1. Selecting an Investment Bank for Underwriting Purpose: The company selects an investment bank to underwrite the IPO. The investment bank helps the company navigate the IPO process, determines the initial offering price, and buys the shares from the company to sell to the public.
2. Due Diligence & Regulatory Filing: The company, with the help of the investment bank, prepares a registration statement to be filed with the relevant regulatory body (e.g., the Securities and Exchange Commission in the US). This document includes detailed information about the company’s financial status, business model, risk factors, and more. Due diligence is performed to ensure all information is accurate and compliant with regulatory standards.
3. Pricing: The investment bank and the company determine the initial price at which the shares will be offered to the public. This involves analyzing the company’s financials, market conditions, and investor demand.
4. Stabilization: After the IPO, the underwriter may stabilize the market by buying back shares if the price falls below the offering price. This helps to support the stock price and maintain investor confidence.
5. Transition to Market Competition: Once the stabilization period ends, the company’s stock price is determined by market supply and demand. The company now competes in the open market, and its performance is subject to the same forces as any other publicly traded company. This phase includes ongoing compliance with regulatory requirements, regular financial reporting, and continued communication with investors.