TL;DR: An initial public offering is a tightly choreographed process in which a private company hires investment banks, files a registration statement (Form S-1) with the SEC, markets the deal to institutional investors during a “roadshow”, lets the bankers build a book of demand, prices the shares the night before launch, and lists on an exchange. Underwriters use a 15% over-allotment option — the famous greenshoe — to stabilize the price for the first 30 days. Insiders are then locked up from selling, typically for 90 to 180 days.
IPO activity has roared back. U.S. exchanges hosted 347 IPOs in 2025, up from 225 in 2024 — a 54% jump, and the largest deal of the year so far has been Cerebras Systems at $5.55 billion. With that backdrop, here is what actually happens between the day a company decides to go public and the morning its ticker first lights up.
Why companies go public in the first place
Going public does three things at once. It raises permanent capital that does not have to be paid back. It gives existing shareholders — founders, employees, venture capital and private-equity backers — a path to eventually convert paper wealth into cash. And it creates a liquid currency (publicly traded shares) that can be used to acquire other companies or compensate employees.
It also creates lasting costs: ongoing SEC disclosure, quarterly earnings scrutiny, board governance requirements, and the loss of optionality that comes with no longer being private. Most companies that file have weighed those trade-offs for at least 12–24 months before they ever pick up the phone to call a banker.
Step 1 — Picking the underwriters
The first concrete step is the “bake-off” — a beauty contest in which the company hears pitches from investment banks and selects a syndicate. One bank becomes the lead bookrunner (sometimes called the “left lead” because of where its name appears on the prospectus cover), and a handful of co-managers fill in beneath. The lead bookrunner runs the process and gets the largest slice of the fee.
That fee is the gross spread. For a traditional U.S. IPO the gross spread is typically up to 8% of proceeds, with 7% being the common figure for small and mid-cap deals. Mega-deals price tighter — well-known billion-dollar offerings often pay closer to 3–4%. The spread is split between a manager fee (paid to the bookrunner), an underwriting fee (paid to the syndicate for taking the underwriting risk) and a selling concession (paid to the brokers who actually place the shares with investors).
Step 2 — Filing the S-1
The registration statement on Form S-1 is the legal core of the IPO. It is the document that takes a private company’s financials and exposes them to the world. The S-1 includes:
- Three years of audited financial statements (income statement, balance sheet, cash flow)
- A management’s discussion and analysis (MD&A) of those financials
- A long, deliberately scary “Risk Factors” section
- Disclosure of how the IPO proceeds will be used
- Compensation and ownership of officers and directors
- Related-party transactions
- The proposed ticker, exchange, and the underwriting agreement
Companies under $1.235 billion in revenue can file as an emerging growth company (EGC) under the JOBS Act, which lets them file confidentially first, scale back some disclosures, and skip an auditor attestation on internal controls for up to five years. Most modern IPOs use this option.
Step 3 — SEC review and the quiet period
Once the S-1 is filed, the SEC staff reviews it and sends comment letters. The company responds with amended filings, and the back-and-forth can run anywhere from six weeks to several months. During this stretch the company is in the quiet period: management, insiders, and the underwriters’ research analysts are sharply restricted in what they can say publicly about the deal. Most communications must come through the formal prospectus.
The prospectus that circulates during this period — with everything filled in except the final price range and share count — is colloquially called a red herring, named for the red disclaimer text printed on the cover.
Step 4 — The roadshow and bookbuilding
When the SEC is comfortable, the underwriters launch the roadshow: roughly two weeks of meetings with institutional investors — mutual funds, hedge funds, sovereign wealth, large family offices. Management presents the story; the bankers’ syndicate desks collect indications of interest, which read like “Account X would buy 1 million shares at $30, or 500,000 at $34.”
This is the bookbuilding process. The bookrunner aggregates those indications into a demand curve. By the end of the roadshow the team can see, at every potential price point, roughly how many shares investors say they would take. Strong books are multiple times oversubscribed — meaning if 100 million shares are on offer, accounts have asked for several hundred million. Oversubscription tells the bankers they can push the price higher; a weak book is the first warning sign that the deal may price below the range or get pulled.
Step 5 — Pricing the deal
The night before the listing, after market close, the bookrunner, the issuer, and the company’s board hold the pricing call. They agree on the final share count and the offering price, balancing two competing forces: pricing high to maximize proceeds for the company versus pricing low enough to leave a “first-day pop” that rewards investors who took the risk on an untested stock.
The result is often shaped by the strength of the book. Cerebras priced at $185, well above its $165–$180 marketed range in 2026, because demand was many multiples of supply. By contrast, a tepid book usually prices at the low end of the range or below.
Step 6 — Allocation and the first trade
Allocation is the most political and least transparent step. The bookrunner decides which institutional accounts get how many shares. Long-only mutual funds that are likely to hold for years usually get the largest allocations — they are the kind of holders the issuer wants on the cap table. Hedge funds that are likely to flip on day one get less. Retail allocations are tiny in most deals; the SEC has noted that individual investors face real obstacles getting IPO shares through their brokers.
On the morning of the listing, the exchange’s designated market maker (NYSE) or auction process (Nasdaq) discovers an opening price using all the orders that have arrived overnight. That opening trade is almost never the IPO price — it is the first time the public market votes on what the shares are worth.
Step 7 — Stabilization and the greenshoe
This is the part that most retail investors do not see. Underwriters routinely oversell the offering by 15% — they sell more shares to investors than the company technically authorized. This creates a short position for the underwriters. They cover it using the greenshoe option, formally the over-allotment option, which gives them the right to buy up to 15% in additional shares from the issuer at the IPO price.
The mechanic is elegant. If the stock trades below the IPO price after launch, the underwriters buy shares in the open market to cover their short — that buying supports the price. If the stock trades above the IPO price, they exercise the greenshoe and buy the extra shares directly from the company at the IPO price, increasing the deal size. Either way, the deal is stabilized and the company gets to sell more shares when demand is strong.
The name comes from Green Shoe Manufacturing Company (now Stride Rite), which was the first issuer to use the structure. A reverse-greenshoe variant — where underwriters can sell shares back to the issuer if the price drops — was famously used in Facebook’s 2012 IPO.
Step 8 — The lock-up and the secondary market
Insiders — founders, executives, VC backers, employees — sign lock-up agreements with the underwriters preventing them from selling their shares for a defined period. Typical IPO lock-ups run 90 to 180 days. The lock-up exists for a simple reason: if every insider could dump their stake on day one, the float would balloon and the price would collapse.
Lock-up expiration is itself a market event. Stocks often dip into the expiration date as traders front-run anticipated insider selling, then sometimes rally if the insiders show restraint. It is also one of the few dates in the IPO timeline that is visible on a calendar — easy to look up in the S-1.
A simple worked example
Imagine a fictional company, ExampleCo, files to sell 20 million shares in a marketed range of $18–$20. After two weeks of roadshow the book is four times oversubscribed at $20. Pricing call: $21, above the range, 23 million shares (the extra 3 million is the greenshoe). At a 7% gross spread the underwriters collect roughly $34 million in fees. The company books proceeds of approximately $450 million.
On day one ExampleCo opens at $26 — a 24% first-day pop. The underwriters, who oversold the deal at the offer price, exercise the greenshoe and buy the extra 3 million shares from ExampleCo at $21, closing their short profitably. Insiders hold roughly 70% of the company; their lock-up agreement keeps them out of the market for 180 days. Day 180 is now a date everyone on the cap table — and everyone who shorts the stock — is watching.
U.S. IPO activity has whipsawed
| Year | U.S. IPOs | Notes |
|---|---|---|
| 2019 | 232 | Uber, Lyft, Zoom, Beyond Meat |
| 2020 | 480 | SPAC boom begins |
| 2021 | 1,035 | Record year, peak SPAC mania |
| 2022 | 181 | Rates rise; window slams shut |
| 2023 | 154 | Lowest non-crisis year in a decade |
| 2024 | 225 | Window reopens |
| 2025 | 347 | +54% YoY; AI/data-center deals lead |
The full IPO timeline at a glance
Common misconceptions
“The IPO price is the price I can buy at.” No. The IPO price is the price paid by the institutional accounts who got an allocation. The opening trade — what retail buyers see — is set by an auction at the exchange and is almost always higher (sometimes much higher) than the IPO price.
“A first-day pop is great for the company.” Not really. A large pop means the underwriters priced the deal below what the market was willing to pay, leaving cash on the table — money that went to flipping institutional accounts instead of the company’s balance sheet. Founders and CFOs increasingly hate seeing big pops.
“Direct listings skip these steps.” Direct listings (Spotify, Slack, Coinbase) skip the underwritten share sale and the greenshoe, but the company still files an S-1, still goes through SEC review, and still has a quiet period. They mainly avoid dilution and the gross spread — but they get less price stabilization in return.
“SPACs are the same as IPOs.” They are not. A SPAC is a shell company that already trades publicly and merges with a private operating company. The disclosure rules are similar but lighter, the timeline is faster, and the dilution profile is very different.
What to learn next
- Direct listings vs. SPAC mergers vs. traditional IPOs — when each makes sense
- The role of market makers and the auction mechanics on listing day
- Lock-up expiration trading strategies (and why they often fail)
- How sector rotation and macro conditions open and close the IPO window
Sources
- SEC Investor.gov — Initial Public Offerings (IPOs)
- IPO process overview, lock-up duration, gross spread
- Greenshoe / over-allotment option mechanics and history
- StockAnalysis — U.S. IPO statistics by year
- ECMSource — Cerebras IPO pricing coverage
Disclosure: This article was produced with AI assistance and reviewed before publication. It is for informational purposes only and is not investment advice.