How an IPO Works
An initial public offering is the day a private company first sells shares to the public and starts trading on an exchange. Here is how the process works, who gets shares at the offer price and what happens on the first day.
Why companies go public
Going public lets a company raise a large amount of money for growth, pay back early investors and give employees a way to sell their shares. In exchange, it must publish its financial results every quarter and answer to public shareholders.
The path from private company to public stock.
The steps
- Hire underwriters: investment banks that manage the deal and help set the price.
- File a registration statement (Form S-1) with the SEC, describing the business, risks and finances.
- Go on a roadshow: management pitches big investors, and the banks gauge demand.
- Price the deal: usually the evening before trading starts, based on demand.
- Allocate shares: most go to large institutions; individual investors usually get few or none at the offer price.
- First trade: the stock opens on the exchange, often far from the offer price.
A real 2026 example
Cerebras, a maker of artificial intelligence chips, first proposed a price range of $115 to $125 a share, raised it to $150 to $160 as demand built, then priced its IPO at $185 on May 13, 2026, raising $5.55 billion. The underwriters also had an option to buy 4.5 million extra shares, 15% of the deal, a standard feature called the greenshoe. The next day the stock opened at $350.
Offer price vs. opening price
The offer price is what the company receives. The opening price is set by the first trades on the exchange. If demand is strong, the opening price can be far higher, which is great for investors who received shares at the offer price, but means the company left money on the table. Most individual investors buy at the opening price or later, not at the offer price.
Key takeaways
- An IPO is a company’s first sale of shares to the public.
- Underwriters, an S-1 filing and a roadshow come before pricing.
- Most shares at the offer price go to large institutions.
- Individual investors usually buy at the opening price or later.