An IPO — Initial Public Offering — is the first time a company offers its shares to the general public. Before an IPO, a company's shares are usually held by a small group: founders and early investors. After an IPO, anyone can buy them on an exchange.
The money raised in an IPO goes to the company (for new shares it issues) and sometimes to existing owners who are selling part of their stake. This is the primary market, where shares are created and sold by the company itself.
How an IPO usually works
- 1Decide to go publicThe company, with advisers, prepares to offer shares to the public.
- 2Set a price bandA price range is announced; the final issue price is decided after seeing demand.
- 3The public appliesInvestors apply for shares during a set window, often through their broker or bank.
- 4AllotmentIf demand exceeds supply, shares are allotted, sometimes by a lottery-like process.
- 5ListingThe shares begin trading on an exchange, where the market sets the price from then on.
Money raised = Issue price × Number of shares offered
Fictional example: Sunrise Motors Ltd offers 1 crore shares at an issue price of ₹100 each. That would raise ₹100 crore before costs. Once listed, the shares trade at whatever buyers and sellers agree — which could be higher or lower than ₹100.
IPO simulator
A company raises money by selling new shares to the public at a fixed issue price.
Issue price per share
₹100
Capital wanted ÷ shares offered
Total demand
300 Cr shares
Subscription: 3×
Your expected allotment
166 shares
Oversubscribed 3×, so allotment is scaled back