How does an IPO actually work?

 How does an IPO actually work? What are the detailed steps/procedures involved in an IPO of a company done by an investment bank?

An initial public offering (IPO) is the process by which a privately held company becomes a public company by issuing shares to the public for the first time. The process of an IPO can be complex and time-consuming, involving multiple steps and a team of professionals. In this article, we will provide a detailed overview of the steps involved in an IPO, including the role of investment banks.

The first step in the IPO process is for the company to decide to go public. This decision is usually made by the company's board of directors and management team, and is based on a variety of factors, including the company's growth prospects, financial performance, and the ability to raise capital.

Once the decision to go public has been made, the company will typically hire an investment bank to serve as the underwriter of the IPO. The investment bank will work with the company to prepare the necessary documents, including a prospectus and registration statement, which will be filed with the Securities and Exchange Commission (SEC). The prospectus is a document that provides information about the company, including its financial statements, business operations, and management team. The registration statement is the document that officially registers the shares with the SEC.

The investment bank will also work with the company to set the price of the shares and the number of shares to be sold in the IPO. This process is called the bookbuilding process, and it involves the investment bank reaching out to potential investors to gauge interest in the company's shares and determine the appropriate price.

Once the price and number of shares have been determined, the investment bank will begin marketing the IPO to potential investors. This process is called the roadshow, and it involves the company's management team traveling to various cities to meet with institutional investors and analysts. The roadshow is an opportunity for the company to present its business plan and growth prospects to potential investors.

Once the roadshow is complete, the investment bank will begin the process of allocating shares to investors. This process is called the allocation process, and it involves the investment bank determining how many shares each investor will receive, based on the number of shares they have expressed interest in purchasing.

After the allocation process is complete, the IPO will officially take place, and the company's shares will begin trading on the stock exchange. At this point, the company will be considered a public company, and its shares will be available for purchase by the general public.

After the IPO, the company will continue to work with its investment bank, which will provide ongoing support and assistance, including helping the company raise additional capital if needed.

Overall, the IPO process is a complex and time-consuming process that involves multiple steps, including preparing the necessary documents, setting the price of the shares, marketing the IPO to potential investors, allocating shares, and officially listing the shares on the stock exchange. Investment banks play a critical role in this process, by underwriting the IPO, preparing the necessary documents, and marketing the IPO to potential investors.

In conclusion, IPO is a process by which a company makes its shares available for purchase to the public for the first time, raising capital in the process. The process is complex and time-consuming, involving multiple steps and a team of professionals, including investment banks who act as the underwriters, preparing the necessary documents, determining the share price, and marketing the IPO to potential investors.