Every year, dozens of high-profile companies ring the opening bell for the first time — transitioning from private ownership to publicly traded equity. But if you’re recruiting for investment banking, you need to understand more than just the moment of celebration. The IPO process explained step by step is exactly what interviewers want to hear when they ask “Walk me through how a company goes public.” This guide covers everything from the initial decision to go public through day-one trading, so you can answer that question with precision and confidence.
Why Companies Go Public
Before diving into mechanics, it’s worth understanding the strategic rationale for an IPO. Companies choose to go public for several reasons:
- Access to capital — a public offering raises fresh equity capital that companies can use for growth, debt paydown, or acquisitions
- Liquidity for existing shareholders — founders, early employees, and VC/PE investors can sell shares and monetize years of work
- Currency for acquisitions — public companies can use their stock to acquire other businesses without spending cash
- Brand and credibility — being publicly traded raises a company’s profile with customers, partners, and future employees
The decision to go public is not taken lightly. Public companies face significant ongoing obligations — quarterly earnings reports, SEC filings, investor relations demands, and heightened scrutiny of management decisions. A company needs to be mature enough operationally and financially to absorb those burdens.
Step 1: Selecting Underwriters
The IPO process begins when the company’s board and management decide to pursue a public offering. The first major step is selecting underwriters — the investment banks that will manage the IPO and sell shares to investors.
Companies typically run a “bake-off” where several banks pitch for the lead underwriter (“bookrunner”) role. The pitch covers the bank’s view of the company’s valuation, its equity distribution capabilities (i.e., how many institutional investors it can reach), the strength of its equity research team in the relevant sector, and its prior IPO track record.
Most IPOs have one or two lead bookrunners (often bulge bracket banks like Goldman Sachs, Morgan Stanley, or JPMorgan) and a group of co-managers that help with distribution. The lead bookrunner earns the largest portion of the underwriting fee — typically 5-7% of gross proceeds for smaller deals, compressing toward 3-4% for mega-IPOs.
If you’re interviewing at a bank with a strong ECM (equity capital markets) franchise, expect questions about what makes a strong underwriter and how the bookrunner selection process works. Our Technical Cheatsheet covers ECM and DCM concepts alongside the core valuation and modeling topics.
Step 2: Preparing the S-1 Registration Statement
Once underwriters are selected, the company and its bankers begin drafting the S-1 registration statement — the primary disclosure document filed with the SEC. This is a massive, detailed document that includes:
- A complete business description (products, market opportunity, competitive landscape)
- Management team bios and compensation
- Three years of audited financial statements
- Risk factors (a comprehensive list of everything that could go wrong)
- Use of proceeds (what the company plans to do with the money raised)
- Capitalization table showing ownership before and after the offering
Drafting the S-1 is a team effort involving the company’s management, its lawyers, the underwriting banks, and the company’s auditors. It typically takes several months and requires intensive coordination. Junior bankers on IPO deals spend enormous amounts of time in “drafting sessions” — marathon meetings where every word of the S-1 is reviewed and debated.
The SEC Review Process
After the initial S-1 is filed, the SEC has 30 days to review it and issue comments. The company responds to each comment with amendments (S-1/A filings), and this back-and-forth can take two or more rounds before the SEC declares the registration effective. For companies with complex accounting or novel business models, this review can be lengthy.
Step 3: The Roadshow
With an effective registration statement, the company kicks off the roadshow — a two-week sprint where the CEO and CFO meet with hundreds of institutional investors (mutual funds, hedge funds, pension funds) to pitch the company and generate demand for the shares.
The roadshow is grueling by design. Management teams travel city to city — New York, Boston, San Francisco, London, and sometimes other international financial centers — meeting with investors in back-to-back sessions. The goal is to educate investors on the business and, crucially, to gauge their level of interest and what price they’d be willing to pay.
Building the Book
Throughout the roadshow, the underwriters collect investor “indications of interest” — non-binding expressions of how many shares investors would buy at various price points. This process is called building the book, and the lead bookrunner maintains a running record of total demand relative to the number of shares being offered.
A deal that is “10x oversubscribed” has received indications of interest for 10 times as many shares as are actually available — a sign of strong demand that gives the company leverage in setting the final price.
Step 4: Pricing the Deal
The night before the IPO (typically a Thursday night if the stock will begin trading Friday), the company and its underwriters meet to set the final offering price. This decision is informed by the book of demand, the current equity market environment, and the pricing of comparable public companies.
Pricing involves genuine tension: the company wants to maximize proceeds (higher price), while investors want to buy at a price that leaves upside for day-one trading. A deal priced “too high” that falls below the offering price on day one is considered a failed IPO and damages the company’s reputation. A deal that pops 50% on day one suggests the company may have left significant money on the table.
The lead underwriter has significant influence over the pricing decision — and over allocating shares to specific investors. Coveted allocations go to long-term institutional holders, not day-traders, since underwriters want a stable shareholder base post-IPO.
Step 5: Day One Trading and the Stabilization Period
On the morning of the IPO, the company’s stock begins trading on its chosen exchange (NYSE or Nasdaq). The designated market maker or exchange specialist works to find the opening price by matching buy and sell orders — a process that can take anywhere from 30 minutes to several hours for high-demand offerings.
The Greenshoe Option
Most IPOs include a greenshoe option (formally called an overallotment option) that allows underwriters to sell up to 15% more shares than originally planned. If the stock rises above the offering price, underwriters exercise the greenshoe, sell the additional shares, and use the proceeds to support demand. If the stock drops, underwriters buy shares in the open market (called “stabilization”) to put a floor under the price. This mechanism protects investors from severe day-one price swings.
The Lockup Period
Existing shareholders — including founders, employees, and pre-IPO investors — are subject to a 180-day lockup period during which they cannot sell their shares. This prevents a massive supply of shares from hitting the market immediately after the IPO and depressing the price. Lockup expirations can be volatile events, particularly if insiders are eager to sell.
Alternative Paths to Going Public
The traditional IPO is not the only route to public markets. In recent years, two alternatives have gained traction:
Direct Listings
In a direct listing, a company’s existing shares simply begin trading on an exchange with no new shares issued and no underwriters managing a book. This is attractive for companies that don’t need to raise fresh capital and want to avoid underwriting fees and dilution. Spotify and Slack went public via direct listings.
SPACs (Special Purpose Acquisition Companies)
A SPAC is a blank-check shell company that raises money in its own IPO and then uses those proceeds to acquire a private company, effectively taking it public. SPACs surged in popularity in 2020-2021 but have since fallen out of favor due to poor post-merger performance and increased regulatory scrutiny.
What Interviewers Want to Hear
When an interviewer asks you to walk through the IPO process, they want to see that you understand the sequence (S-1 filing, SEC review, roadshow, pricing, trading), the roles of the key parties (company, underwriters, lawyers, auditors, SEC), and the mechanics of key concepts like the greenshoe and the lockup period.
More sophisticated interviewers will probe your understanding of pricing tension, how oversubscription affects price-setting, and how underwriters allocate shares. Knowing these nuances separates strong candidates from average ones.
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