Initial Public Offering

Initial public offering (IPO)

A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds) usually include underwriting fees that represent a load to buyers.

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initial public offering (IPO)

A company's first sale of stock to the public. Securities offered in an IPO are often but not always those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally assume very large risks for the possibility of large gains. See also pre-IPO.

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Initial Public Offering

The first price for which a company offers to sell stock in itself when it moves from private ownership to public trade. More generally, it refers to the actual first sale of stock to the public. Small companies looking for a new source of financing offer most IPOs, but large companies who wish to be publicly traded can offer them as well. An IPO is generally a risky investment, because one does not know how much demand will exist for the stock after its initial offering; the risk comes from the uncertainty about the stock's resale value. See also: Publicly-traded company.

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Initial public offering (IPO). When a company reaches a certain stage in its growth, it may decide to issue stock, or go public, with an initial public offering (IPO). The goal may be to raise capital, to provide liquidity for the existing shareholders, or a number of other reasons.

Any company planning an IPO must register its offering with the Securities and Exchange Commission (SEC).

In most cases, the company works with an investment bank, which underwrites the offering. That means marketing the shares being offered to the public at a set price with the expectation of making a profit.

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Initial Public Offering (IPO)

What Does Initial Public Offering (IPO) Mean?

The initial selling of stock by a company to the public to raise capital; IPOs often are issued by smaller, younger companies seeking the capital to expand but also can be issued by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price, and the time to bring it to market. Also referred to as a public offering.

Investopedia explains Initial Public Offering (IPO)

An IPO can be a risky investment. For the individual investor, it is difficult to predict what the stock will do on its initial day of trading or in the future because there is often little historical performance data with which to analyze the company. Also, many IPOs are issued by companies going through a transitory growth period and are subject to additional uncertainty about their future values.

Related Terms:
• Equity
• Investment Bank
• Private Equity
• Stock
• Underwriter