What Is an IPO?
An IPO, or initial public offering, is when a private company first sells shares to the public on a stock exchange.
How it works
In an IPO, a company hires investment banks, files detailed disclosures with the US Securities and Exchange Commission (SEC), and offers shares to public investors. After listing, anyone can buy and sell the stock on an exchange, and the company must report its results regularly. Early investors and employees can often sell some of their shares after a lockup period ends.
An IPO can raise new money for the company and gives owners a market for their shares. It also brings costs, scrutiny and legal duties. This is a general overview, not securities advice.
Example
For example, a company sells 5,000,000 new shares at $20 each in its IPO. That raises $100,000,000 before fees. If the company has 50,000,000 shares afterward, those new shares are 10 percent of the company. The numbers are hypothetical and ignore bank fees and any shares sold by existing holders.
Why founders care
An IPO is rare among startups. Most that exit are acquired instead. Still, it shapes investor expectations, since venture funds often plan around a small number of very large outcomes. Going public also changes how a company is run, with a board, auditors, quarterly reporting and public pressure.
Common mistakes
- Assuming an IPO is the default goal for every startup.
- Ignoring the costs and reporting duties of being public.
- Forgetting that insiders usually face a lockup before they can sell.
Frequently asked questions
What is the difference between an IPO and an acquisition?
In an IPO the company stays independent and sells shares to the public. In an acquisition another company buys it. Founders and investors may cash out in either, but the process and control differ.
Can a small startup do an IPO?
Rules and costs make it uncommon for very small companies. Talk to a securities attorney about what applies. Alternatives, such as an acquisition or staying private, are far more common.
Related terms
Go deeper
- Startup Funding Stages: Pre-Seed to Series C Explained GuideStartup funding stages explained in plain English: pre-seed, seed and Series A, B and C, what each round is for, what investors expect and how rounds are sized.
- Bootstrapping vs Venture Capital: How to Choose GuideBootstrapping vs venture capital explained: how each works, what you give up, worked examples, and how to decide which path fits your startup.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.