Compare
| IPO Phase | What Happens | Duration |
|---|---|---|
| S-1 filing | Company files detailed prospectus with SEC | Weeks to months of SEC review |
| Roadshow | Management pitches to institutional investors | 1–2 weeks |
| Book building | Banks collect demand at various prices | During roadshow |
| Pricing | Final price set (often below demand to create ‘pop’) | Night before trading |
| First day trading | Stock opens, often 20–50% above IPO price | Day 1 |
| Lock-up expiry | Insiders can sell (typically 90–180 days) | 3–6 months post-IPO |
Key point
The first-day ‘pop’ is money left on the table by the company. If a stock prices at $20 and opens at $30, the company raised $10 less per share than it could have. Banks underprice to reward their institutional clients, not the company.
Try it
Look at recent IPOs and compare the offer price to the first-day close. The average IPO pop is 15–25%. This represents a transfer of wealth from the company to IPO allocators.
Check-in
An IPO prices at $25 and closes Day 1 at $40. Retail investors who buy at $40 are paying:
Key insight
Check-in
A company files S-1 targeting a $5B IPO valuation. Revenue: $500M, growth 40%. Comps trade at 6x revenue. The banker pitches 10x on 'growth premium.' How should you read this?
Check your understanding
Sit with the ideas.
A company prices its IPO at $28 per share, raising $700 million (25 million shares). On the first day of trading, the stock closes at $42. How much money did the company 'leave on the table'?
Why: