IPO (Initial Public Offering)
What an initial public offering actually involves, what it costs, and why most companies that talk about going public never do.
When someone says a company “went public,” they mean it held an IPO, an initial public offering, which is the first time a company sells shares of itself on a stock exchange. Before an IPO, the only people who own a piece of the company are the founders, their employees, and whatever private investors negotiated their way in. After an IPO, anyone can buy shares through a regular brokerage account, the same way you would buy stock in Apple or Nike.
Going public also means the company becomes a publicly traded company. Those two things happen at the same moment: the IPO is the event, and being publicly traded is the permanent status that follows. Once public, the company has to report its financial results every quarter, follow SEC (Securities and Exchange Commission) regulations, and answer to shareholders who now have a legal stake in how the business is run.
The reason this matters for founders is straightforward. A founder who owns 30% of a company valued at $1 billion on paper is theoretically worth $300 million, but she cannot spend that money because nobody is buying those shares on the open market. An IPO creates that market. It turns ownership on paper into ownership that can actually be sold for cash, which is why every celebrity brand that raises venture capital eventually faces the question of whether and when to go public.
How It Works
The IPO process typically takes six to twelve months and involves far more preparation than most founders expect.
Step 1: File an S-1. The S-1 is the document a company files with the SEC to say “we want to go public.” It is the most detailed financial disclosure the company has ever had to make, covering revenue, expenses, profit margins, how much the executives are paid, who owns what percentage, and every risk the business faces. For companies that have kept their finances private for years, this is the moment the world finds out whether the numbers match the hype. When people say a company “has not filed an S-1 yet,” they mean the IPO process has not officially started.
Step 2: The roadshow. Over one to two weeks, the CEO and CFO fly around the country meeting with large investors (pension funds, mutual funds, hedge funds) to pitch them on buying shares. These conversations determine how much demand there is for the stock, which directly affects the price.
Step 3: Set the price and start trading. Based on how much interest the roadshow generated, the company and its bankers set an IPO price, which is the price per share that those large investors pay. The next morning, the stock opens for public trading and anyone can buy it. If the stock price jumps significantly on day one (the “IPO pop”), it makes for good headlines but actually means the company set its price too low and left money on the table.
What It Costs
Going public is expensive before the company raises a single dollar from new investors.
| Expense | Typical Range |
|---|---|
| Investment bank fees (their cut for managing the IPO) | 3.5–7% of total funds raised |
| Legal fees | $1–3M |
| Accounting and audit | $500K–2M |
| SEC registration and filing fees | $100K–500K |
| Printing and roadshow travel | $500K–1M |
| Total direct costs | $4–10M before a single share is sold |
| Ongoing annual costs of being public | $1–3M/year |
The investment bank fee is the biggest line item. If a company raises $500 million in its IPO, the banks take 3.5 to 7 percent of that, meaning $17.5 million to $35 million goes to the bankers. This is why companies need to be a certain size before going public even makes financial sense.
Why Companies Go Public
To turn paper wealth into real money. Founders, early employees who were paid partly in stock, and investors who put money in years ago all hold shares they cannot easily sell while the company is private. An IPO creates a public market where those shares can be converted to cash. This is also why venture capital firms push companies toward an IPO: the VCs need to return money to their own investors, and they cannot do that while the shares are locked up in a private company.
To raise a large amount of money at once. A company that needs $500 million to expand into new countries or buy a competitor can raise that by selling new shares to the public in a single offering, rather than spending months negotiating with individual investors.
To use stock as a tool. A publicly traded company can use its shares to acquire other companies (paying with stock instead of cash), attract employees with stock options that have a clear and visible market value, and access financial instruments that are only available to public companies.
Why Companies Stay Private
Staying private used to mean a company could not raise large amounts of capital. That is no longer true. Companies like Skims have raised nearly $900 million through private funding rounds without going public, and the growth of private equity and venture capital means that billion-dollar fundraises no longer require a stock exchange.
Founders lose control. Once a company is public, its shareholders vote on major decisions, outside investors can publicly pressure the company to change direction, and the board of directors answers to a much larger and more vocal group of people than before.
Wall Street wants results every three months. Public companies report earnings quarterly, and a single bad quarter can cause the stock to drop 20% or more. A decision that makes perfect sense over three years but hurts profits in the short term becomes very difficult to make when millions of shareholders are watching the stock price in real time.
Everything becomes public. Revenue, expenses, profit margins, executive pay, ownership stakes, and every material risk factor are disclosed in public filings that competitors, suppliers, journalists, and customers can all read. For a private company, that information stays behind closed doors.
What Happens to the Founder’s Ownership
An IPO dilutes the founder’s percentage because new shares are created and sold to the public. If a founder owns 35% of the company before the IPO and the company creates new shares equal to 20% of its total, the founder’s stake drops to roughly 28%. The percentage goes down, but if the IPO values the company higher than its last private valuation, the dollar value of her stake still goes up, which is why dilution is not automatically a bad thing.
There is also a catch called the lock-up period: for 90 to 180 days after the IPO, insiders (including the founder) are not allowed to sell their shares. This prevents a rush of insider selling from tanking the stock on day one, but it also means that the founder’s big “liquidity event” does not actually produce any cash for months.
Alternatives to a Traditional IPO
Direct listing means the company skips the investment banks and lists its existing shares directly on a stock exchange without raising new money. The market sets the price on the first day of trading rather than a bank. Spotify and Slack both did this, avoiding the 3.5 to 7 percent bank fee but also giving up the price stability and guaranteed investor support that a traditional IPO provides.
SPAC (Special Purpose Acquisition Company) is a workaround where a company with no actual business goes public first, raises money from investors, and then merges with a real private company to take it public. SPACs were popular in 2020 and 2021, but the average SPAC that merged during that period lost more than half its value within two years, and regulators have made the structure far less common since then.
Staying private is what the vast majority of companies do. Fewer than 1% of U.S. companies are publicly traded, and many of the largest private companies in the world have no plans to change that.
Frequently Asked Questions
What does IPO stand for?
Initial public offering. It is the first time a company sells shares of itself to the public on a stock exchange.
Is an IPO the same as being publicly traded?
An IPO is the one-time event. Being publicly traded is the ongoing status that results from it. A company does an IPO once, and then it is a publicly traded company from that point forward (unless it later goes private again, which does happen but is uncommon).
How long does an IPO take?
Six to twelve months from the decision to go public through the first day of trading, though many companies spend years talking about “exploring an IPO” before actually committing. Skims was reportedly interviewing banks in 2024 and still had not filed an S-1 as of early 2026.
How much does it cost to go public?
$4 million to $10 million in direct costs, plus 3.5 to 7 percent of whatever the company raises in investment bank fees. A company that raises $500 million might pay $25 million or more in total IPO costs.
What is an S-1?
The formal document a company files with the SEC (the government agency that regulates public markets) when it wants to go public. It discloses the company’s finances, risks, ownership structure, and executive compensation in detail, and it becomes public record the moment it is filed. When news reports say a company “has not filed an S-1,” they mean the company has not officially started the IPO process.
What is a lock-up period?
A 90-to-180-day window after an IPO during which the founder and other insiders are not allowed to sell their shares. It exists to prevent insider selling from crashing the stock in the first weeks of public trading.
Can a company go public without doing an IPO?
Yes, through a direct listing (listing existing shares without raising new money) or a SPAC merger (merging with a shell company that is already public). Direct listings were used by Spotify and Slack. SPACs surged in 2020 to 2021 before declining sharply due to poor results and increased regulation.
Sources
- SEC, “EDGAR Full-Text Search: S-1 Filings,” 2024. S-1 filing requirements, disclosure standards, and public company reporting obligations under SEC regulations.
- PwC, “Considering an IPO? First, understand the costs,” 2024. IPO cost breakdowns, investment bank fee ranges (3.5-7%), legal and accounting cost estimates, and annual public company compliance costs.
- Renaissance Capital, “US IPO Market: 2024 Annual Review,” 2024. IPO market performance data, lock-up period analysis, SPAC performance post-merger, and direct listing comparisons (Spotify, Slack).
- EY, “Global IPO Trends,” 2024. IPO process timeline benchmarks (6-12 months), roadshow mechanics, and pricing methodology.
- NYSE and Nasdaq, listing requirements documentation, 2024. Exchange listing standards, ongoing compliance costs, and quarterly reporting obligations for public companies.