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IPO definition
An IPO, or initial public offering, is the first sale of a company's shares to the public on a stock exchange. It turns a privately held company into a listed one whose shares anyone can then buy and sell on the open market.
In the run-up, the company works with investment banks that underwrite the deal, set a price or price range, and market the shares to investors. The company can issue new shares to raise capital for itself, while early investors and founders may sell part of their existing holdings. Once trading opens, supply and demand set the share price, which can swing sharply on the first day.
An IPO is the first public sale, which separates it from a secondary offering, where an already-listed company issues and sells further shares after its debut. It also differs from a rights issue, which is a secondary offering aimed specifically at existing shareholders. In short, the IPO is the listing event, and later raises happen once the company is already public.
IPO Example
You follow a company that lists through an IPO, offering 10 million new shares at USD 20 each. The company raises:
10 million √ó USD 20 = USD 200 million
That is USD 200 million of fresh capital, before fees. If demand is strong and the shares open at USD 26 on the first day, early buyers who got in at the USD 20 offer price are up USD 6 a share.
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