Key takeaways

• An initial public offering (IPO) is when a private company offers its shares to the public for the first time.

• Going public allows companies to raise capital, increase visibility, and provide liquidity for early investors.

• The IPO process typically involves regulatory filings, underwriters, due diligence, and a roadshow to attract institutional investors.

• Companies list on a stock exchange like NASDAQ or NYSE after determining their IPO price and number of shares to offer.

• IPO shares become available for trading on the secondary market after the offering is complete.

• Rho supports startups preparing for growth with banking and finance solutions that scale.

Initial public offering: How do IPOs work?

An IPO, or initial public offering, is the first time that a privately held company sells shares of its stock to public investors. By listing its shares on a public stock exchange, the company transitions from being privately owned (typically by founders, employees, and early investors) to a publicly traded and regulated entity.

There are many reasons companies pursue an IPO. Chief among them is the ability to raise substantial capital without taking on debt, which can support business expansion, R&D, acquisitions, and other long-term investments.

Why do companies go public?

An IPO also provides early stakeholders the opportunity to sell shares and realize gains on their investments. Employees who received stock options in the early days of the company may finally have a path to liquidity.

Going public can also improve credibility and visibility. Publicly traded companies are subject to regulatory oversight and disclosure requirements, which can make them more attractive to potential partners, lenders, and customers. 

For fast-growing startups, the IPO may be part of a broader strategy to cement their leadership in the market.

While an IPO is not the only route to growth (some companies opt for private equity, SPACs, or direct listings), it remains one of the most traditional and visible milestones for a maturing business.

Learn more about how to fund your startup in our blog about funding.

The differences between IPOs vs. staying private

Going public isn't the only option for companies seeking growth. Some founders choose to remain private for longer (or indefinitely) based on their industry, funding strategy, or long-term goals. 

Staying private allows leadership to maintain control over the business and avoid the reporting burdens and market pressure that come with public ownership. There's more flexibility in decision-making and fewer distractions from quarterly earnings cycles.

That said, remaining private often means relying on venture capital, private equity, or internal cash flow to fund expansion. These sources can be limiting, especially for capital-intensive industries or companies aiming to scale quickly. 

In contrast, going public often provides access to a deeper pool of capital, greater visibility in the market, and liquidity for early shareholders.

For many companies, the structure and scale of a traditional IPO remain the most tested and effective way to raise capital while introducing the business to long-term public investors.

How the IPO process works, from private to public

The IPO process is not a single event. It’s a months-long journey that involves legal preparation, financial restructuring, investor engagement, and market analysis. 

For most companies, this process begins well before any paperwork is filed or investors are contacted.

1. Pre-IPO readiness and eligibility

The first step is assessing whether your business is ready to become a public company. That means evaluating the financial health of your organization, your leadership team, your market potential, and your ability to operate under the scrutiny that comes with being listed on a public exchange.

As a public company, you’ll need to meet ongoing reporting requirements, including quarterly and annual disclosures. That, in turn, means you’ll need solid internal controls, accurate reporting systems, and clear executive accountability.

If you’re considering an IPO, you’ll also need a compelling story. Investors will look for a credible path to profitability, sustainable growth, and a clear competitive advantage.

Many companies often work with consultants and legal advisors to prepare themselves for this transition. You may restructure your board, tighten compliance, and standardize reporting to align with public-market expectations.

If your cap table is complex, you may need to clean up or convert certain share classes. For example, preferred shares held by venture investors are typically converted into common stock before an IPO. These changes help ensure the company’s equity structure is easier to understand for future shareholders.

Check out our blog on common stock for startups to learn more. 

1. Choosing underwriters and investment banks

When a company reaches that point of readiness, a common next step is to bring in one or more underwriters to support the IPO process.

Underwriters typically serve as both advisors and intermediaries. They conduct due diligence on the company, help position the company to investors, and assist in setting the IPO price and structuring the deal.

Choosing an underwriter is an important decision. Large investment banks bring deep experience and broad distribution networks that help generate demand among institutional investors. Mid-sized or boutique banks may offer more personalized service and lower fees. In many cases, companies choose to work with a syndicate of banks, each handling a portion of the offering. This helps reduce risk and expand investor outreach.

The underwriter’s role extends beyond pricing and marketing. They also assume some financial risk. 

In a traditional firm-commitment IPO, underwriters agree to purchase all offered shares and then sell them to investors. This guarantees the company raises a set amount of capital, even if investor demand falls short.

1. Filing with the SEC: What’s in the registration statement

After selecting underwriters, many companies begin preparing a registration statement, typically filed using SEC Form S-1. This is a detailed document that includes the company’s financials, risk factors, business strategy, market analysis, legal information, and planned use of proceeds, plus your capital structure (share classes and liquidation preferences). 

The most visible part of this document is the prospectus, which investors review to decide whether they want to buy shares.

The SEC reviews the filing and may request revisions or additional information. This process (called the comment period) can take weeks or even months, depending on the complexity of the business and the quality of the initial filing. 

You’ll need to respond to SEC comments thoroughly and transparently before proceeding.

This step requires full disclosure and accuracy. Any misleading or omitted information could not only delay the IPO but also expose the company to legal liability down the road. Once the SEC is satisfied, the registration statement is declared effective, and you can proceed with marketing and pricing the offering.

1. Marketing the IPO to investors with a roadshow

Once regulatory clearance is in place, most companies launch a roadshow as a chance for the management team to meet with institutional investors, present the company’s growth story, and answer tough questions.

Roadshows typically last one to two weeks and include stops in major financial cities like New York, San Francisco, Boston, and London. Many roadshows also include virtual meetings, which allow for greater reach and flexibility.

During this period, underwriters gauge demand by collecting indications of interest at various price levels. These are non-binding expressions from investors stating how many shares they would be willing to buy and at what price. The underwriters use this information to adjust the expected IPO price range and finalize how many shares to sell.

The roadshow is often the most visible marketing effort in the IPO process. A successful roadshow builds momentum for the listing and can lead to strong first-day trading.

1. Determining IPO pricing: Fixed-price vs. book-building methods

Not all IPOs are priced the same way. There are two common methods companies use to determine their IPO pricing: fixed-price offerings and book-building offerings.

In a fixed-price offering, the company and its underwriters agree on a share price before the IPO goes live. This price is included in the prospectus and remains constant throughout the offering period. Investors know exactly what they’re paying in advance. 

However, fixed pricing lacks flexibility. It doesn’t adjust to actual market demand. If interest is higher than expected, the company may leave money on the table. If demand is weak, it may not sell all the shares.

By contrast, most modern IPOs use the book-building method. In this approach, underwriters gauge investor demand during the roadshow by collecting indications of interest at various price levels. 

These inputs create a “book” of potential buyers, which underwriters use to set the final offering price. Book-building can enable more accurate pricing and often leads to stronger initial trading performance because it better reflects current investor sentiment.

This method also allows the company to adjust the number of shares or the price range in response to investor appetite, which adds flexibility that can be critical in volatile markets.

1. Finalizing IPO price, share allocation, and preparing to launch

After the roadshow, companies and their underwriters use demand signals to set the final offering price and determine the number of shares to sell. 

This is not a simple formula. It’s a balancing act between investor demand, company valuation, and prevailing market conditions.

The offering price is what investors will pay for the IPO shares. It’s often within or near the price range floated during the roadshow, but can shift based on how much interest the offering generates. 

If demand is high, the final price may come in at the top of the range, or the company may increase the number of shares sold to raise more capital.

IPO shares are typically allocated primarily to large institutional investors, such as mutual funds, pension funds, and hedge funds. These investors tend to buy in large volumes and are considered more stable than retail buyers. However, a small portion of shares may be reserved for individual investors through certain brokerage platforms, though access can be limited.

Once finalized, the company lists its shares on a stock exchange (often Nasdaq or the NYSE), and the stock becomes available for trading on the open market. This is the first time the general public can buy and sell shares, and it marks the official debut of the company as a public entity.

On launch day, the opening price may differ materially from the offering price. It can surge if demand is strong or dip if investors are cautious. It can surge if demand is high, or drop if investors are skeptical. This volatility is normal and reflects the broader market’s response to the new listing.

Post-IPO trading, lock-up periods, and early volatility

Once trading begins, the company's stock is now part of the public market, accessible to retail and institutional investors alike. But the story doesn't end there. The period immediately following an IPO is often marked by high volatility as investors react to news, earnings reports, and general market sentiment.

Newly public stocks tend to experience more dramatic swings in price compared to well-established companies. This is partly because there’s limited historical data and partly because investors are still forming opinions about the company’s long-term prospects. 

Media coverage, analyst ratings, and early financial results all play a role in shaping investor sentiment during these first few months.

To help stabilize the share price during this transition, companies typically agree to a lock-up period (usually 90 to 180 days), during which insiders like executives, employees, and early investors are prohibited from selling their shares. This restriction prevents a sudden influx of supply that could overwhelm demand and drive down the stock price.

Once the lock-up period expires, it’s not uncommon to see a wave of selling as insiders finally gain liquidity. The impact of this varies depending on how the company has performed post-IPO. 

If investors are confident in the company’s future, demand may be strong enough to absorb the extra supply without much disruption. If the stock has underperformed, however, the expiration of the lock-up period can amplify volatility.

Responsibilities and expectations of a new public company

Becoming a publicly traded company isn’t just about raising money. It’s about stepping into a new era of accountability. 

As a public company, you’ll be held to high standards for transparency, governance, and performance. You’ll file quarterly (10-Q) and annual (10-K) reports, host earnings calls, and make timely disclosures about material events.

Executives can expect scrutiny from analysts, shareholders, and regulators. Investors generally expect consistent communication, clear strategy, and measurable results.

Missteps, missed targets, delays, and leadership changes can lead to sharp share-price moves.

There are also internal cultural shifts to consider. Employees with stock options begin to watch the company’s share price more closely. 

Leadership will need to balance short-term expectations with long-term plans. This shift in focus can affect decision-making at all levels of the organization.

Still, life as a public company comes with powerful advantages. Access to capital markets allows for follow-on offerings, which can be used to raise additional funds later on. Public stock can also be used as a currency for acquisitions or as a tool for recruiting top talent.

Taking your company to the next level with an IPO

Going public is more than just a financial milestone. It’s a strategic transformation. For companies that are ready, the IPO is a chance to solidify their market position, attract long-term investors, and accelerate growth. But it’s not a decision to make lightly.

The road to becoming a listed company is demanding. It requires months of planning, significant legal and accounting work, and a leadership team that can navigate the complexities of public ownership. 

And even after the IPO is complete, the real work continues. Maintaining investor confidence, meeting regulatory requirements, and executing on the company’s mission all become even more important.

If your company is considering going public (whether in the next 12 months or further down the line), the best thing you can do is start preparing early. Building the right operational foundation today will save time and resources when you’re ready to make your move.

How Rho supports scaling businesses

At Rho, we work with finance leaders who understand the value of being prepared. Financial teams rave about Rho’s integrated financial stack that allows them to scale quickly without scaling fees (our platform is fee free). Additionally, we offer 24/7, white glove customer service and a team that will be there to celebrate every moment in your business’ journey.

We also help streamline corporate spend while improving budget visibility through built-in spend controls. Our platform simplifies vendor payments and accounts payable workflows by centralizing them into a single dashboard, and enforces rules to squash non-compliant spend. 

Lastly, companies can maximize the value of their cash with Rho Treasury, which offers both treasury bill and mutual fund investing. Plus, with auto-sweeps, your funds will return back to your operating account right when you need it.

Whether you’re preparing to go public or see it in the future, every decision matters. We help you build the financial infrastructure that supports transparency, compliance, and long-term success.

Get started with Rho.

FAQs about IPOs

What is the difference between primary and secondary markets?

The primary market involves the initial sale of IPO shares from the company to investors. The secondary market refers to post-IPO trading on the open market.

Who gets IPO shares first?

Institutional investors typically get first access to IPO shares during the allocation process. Retail investors may gain access through select brokerage platforms.

What is a prospectus in an IPO?

A prospectus is a formal document filed with the SEC that outlines key company information, risks, and financials for potential investors.

How is the IPO price determined?

Underwriters typically set the IPO price based on investor demand, valuation, and market conditions observed during the roadshow.

Can ETFs and mutual funds buy IPO stocks?

Yes, many institutional investors like ETFs and mutual funds participate in IPOs, especially for high-demand offerings.