IPO

An initial public offering is when a private company sells shares to the public for the first time and lists on an exchange. Until then only founders and early investors could hold stock; after listing, anyone can buy and sell it in the market.

Companies do it for two main reasons. One is raising a large sum: selling equity rather than borrowing funds investment without interest payments. The other is opening a route for existing investors and employees to convert their holdings into cash. In return come obligations to report results quarterly and to operate under public scrutiny.

Individuals usually participate by subscribing to the offering. Buying at the offer price and selling on the first day can be profitable, but popular deals are heavily oversubscribed and you rarely receive the full amount requested. Right after listing, few shares circulate while expectations run high, so prices swing violently, and it is not unusual for a first-day peak to go unmatched for years.

So there are things worth checking: how the offer price was justified in the prospectus, including peer companies and the discount applied; when insider shares come out of lockup; and what the company said it would do with the money. Prices often sag when lockups expire and supply floods in, which is why the calendar after the listing matters more than the listing itself.