| Stage | Who runs it | What it determines |
|---|---|---|
| File S-1 | Company + legal counsel | Public disclosure of financials, risk factors, use of proceeds |
| Roadshow | Underwriters + company management | Marketing to institutional buyers in a 1-2 week travel circuit |
| Price talk | Underwriters publish a range (e.g., $18-22) | Sets expectations; the final price often lands ABOVE the range in hot deals |
| Bookbuilding | Underwriters collect demand indications | Tells the banks where to PRICE the deal and how to ALLOCATE shares |
| Pricing + allocation | Underwriters set final price the night before trading | Pre-allocated shares go to favored institutional accounts at the offer price |
| First-day trading | Public market | Stock opens above offer price in hot deals (the 'pop') -- captured by allocation holders, not retail |
| Lockup (~180 days) | Pre-IPO holders contractually frozen | Insiders, VCs, employees cannot sell |
| Lockup expiration | All locked shares become sellable on one day | Often creates predictable selling pressure |
IPO allocation favors big institutions. When demand for the deal is high, the underwriters allocate shares to the accounts that pay them the most in trading commissions over time -- large institutional funds. Retail investors typically receive zero allocation at the offer price and have to buy in the open market on day one, AFTER the pop. So the headline 'IPO returned 30% on day one' usually refers to a return realized by institutions, not by retail who paid the higher open price.
The greenshoe option is a clause that lets underwriters sell up to 15% more shares than the original offering. If the stock trades above the offer price, they exercise the greenshoe (extra shares sold). If the stock falls below offer, they can buy shares in the open market to cover the same short position they created by overselling -- which supports the price. Greenshoe is the legal mechanism that lets banks stabilize a wobbly IPO in its first few weeks without market manipulation concerns.
Lockup expiration is the single most predictable IPO event. For roughly 180 days, all the pre-IPO holders -- founders, venture investors, employees with vested stock -- cannot legally sell. On day 181, they all can. The supply of sellable shares jumps overnight from the IPO float to the full diluted share count, often a 3-5x increase. Empirically, lockup-expiration days see elevated volume and often material price weakness as a chunk of insiders monetize their first liquidity window. The exact magnitude varies, but the DIRECTION is one of the most well-documented patterns in equity microstructure.
Direct listings and SPACs differ on lockup mechanics. A direct listing typically has a much shorter or no traditional lockup -- existing shareholders can sell immediately, so day-one supply is fundamentally different. SPAC-merged tickers have their own lockup conventions that often run six months from the de-SPAC date. The 'standard 180-day lockup' applies to traditional underwritten IPOs but not universally; reading the S-1 or merger docs for the actual lockup schedule is part of any post-IPO diligence.
Sit with the ideas.
Larchmont Capital is reviewing a portfolio of three positions: (A) a recently IPO'd software company that priced at $24 four months ago, popped to $39 on day one, and now trades at $44; (B) the same name's position size: $200K, all bought at $44 in the open market over the past month; (C) the lockup expires in 8 weeks. The PM is debating whether to add or trim before the lockup date. Which framing combines the section 4 lockup mechanic with the section 2 allocation reality into the most defensible diagnosis?