An IPO (Initial Public Offering) is the first time a company's shares are listed on the stock exchange. In simple terms, it is the moment when a private company goes public and sells part of itself (i.e. its shares) to the public of investors for the first time.

Why do companies need to go public?

But why does a successful company need one at all? Because it can raise investment, grow, hire a team and conquer the market without an IPO.

First, it raises a lot of capital

When a company goes public, it sells some of its shares to investors in return for cash. These funds can be used to scale the business, develop infrastructure and research and development.

In the private sector, investment amounts are limited, but through an IPO, a company can raise hundreds of millions or even billions of dollars in a single day.

Liquidity for shareholders

An IPO is a form of exit. After an IPO, funds as well as the founders can sell some or all of their shares, while employees are allowed to redeem options for cash.

In a private company, shares have no liquidity: they are difficult or impossible to sell.

Trust and recognition

A company that is audited, publishes its financial statements and is listed on the stock exchange automatically gains higher trust from partners, customers, and the media.

This is a reputational asset that makes it easier to win new customers and contracts, to conduct M&A and to attract talent.

Currency in the form of shares

After an IPO, a company's shares become a means of payment. For example, you can use shares as part of employee compensation. Or you can pay with shares when you buy other companies (the other party gets not only a stamp of approval, but also a stake in the listed company).

This gives you flexibility in making strategic decisions.

Stages of an IPO

The first and most important step is the decision to become a public company. The founders, board, and shareholders assess whether the company is ready for openness, financial transparency and new responsibilities to public investors.

This stage takes into account financial performance and growth rates, the competitive environment, market conditions and whether internal processes are ready for public status.

Preparation

Public companies need to be as open as possible with investors. That's why financial statements are the foundation of trust. Before an IPO, a company should:

• Prepare financial statements for the last 2–3 years.
• Have an independent audit following international standards (GAAP or IFRS).
• Clean up financial processes, internal controls, cost, and revenue recognition.

In practice, this means that everything hidden will be revealed. Unexplained expenses, questionable contracts, weak accounting — all need to be corrected.

Pre-IPO private rounds

These rounds play a crucial role in shaping the initial ownership structure, setting a benchmark for the company's valuation, and creating expectations for the market before an IPO.

If a startup has undergone several substantial funding rounds with venture capital funds or strategic investors, this will impact its future capitalisation. For example, an inflated valuation in later private funding rounds can cause problems on the stock exchange.

The public market is less inclined to pay a premium for prospects. Conversely, strong private rounds with well-known funds can add credibility and signal that the company has undergone rigorous due diligence.

Conversion of convertible instruments

Often, companies have convertible instruments in circulation before their IPO: SAFEs, convertible notes or preferred shares, for example. Going public requires all of these to be converted into common shares.

This technical process is critical as it affects the number of shares in circulation, investor rights and the calculation of future capitalisation. Convertible instruments, for example, may have a discount to the IPO price or special coefficients that effectively dilute the shares of other shareholders.

Clean-up of the cap table before the S-1/prospectus

The capitalisation table (or 'cap table') of a startup before its IPO is frequently complicated, with dozens of share classes, special options and bonuses for early investors. Such complexity is unacceptable for the public market.

Before filing Form S-1, the company simplifies the ownership structure, consolidates share classes and eliminates privileges that will not work in a public format in a process known as a 'clean-up'. This is necessary for transparency and to gain the trust of analysts and future shareholders. A simple and comprehensible cap stack signals that the company is ready to play by the rules of the public market.

Use of proceeds

Use of proceeds is an explanation of exactly how the company will spend the funds raised. This is not a formality, but one of the main factors that institutional investors evaluate. Will the money be used for product development, international expansion, R&D, or debt repayment?

If a significant portion is earmarked solely for debt servicing, this sends out a negative signal. However, if the focus is on growth and market expansion, this creates an attractive story for investors. The use of proceeds affects demand and the final valuation during an IPO.

Choosing an underwriter and a stock exchange

An IPO is not possible without an underwriter — a large investment bank or group of banks that will guide the company through all stages of the flotation. Their role is to:

• Carry out a preliminary valuation of the company.
• Assist in the preparation of documents.
• Organise a roadshow (presentation to investors).
• Determine the optimal share price.
• Guarantee the repurchase of some shares.

Large companies usually choose underwriters from among the most well-known players, such as Goldman Sachs, Morgan Stanley or JPMorgan. However, the choice also depends on the specifics of the company, the industry, and the market.

The next step is to select a stock exchange. The largest are NASDAQ and NYSE in the US, LSE in the UK and Euronext in Europe. Each exchange has its requirements for company size, liquidity and financial performance.

Legal formalisation

The public status of a company requires careful legal formalisation.

• Preparation of a prospectus detailing the business, finances, risks, and governance structure.
• Preparing corporate documents, updating the articles of association and establishing an independent board of directors.
• Implementing corporate governance policies, including compliance, anti-corruption and conflict of interest policies.
• Defining a lock-up period for founders and early investors (a ban on selling shares for several months after the IPO).

This process requires law firms with capital markets expertise — you can't do without them.

Roadshow

A roadshow is a series of meetings during which the company's top management meets face-to-face with potential investors: funds, banks, insurance companies, portfolio managers and analysts. This is necessary to:

• Present the company, its business model, financial performance, competitive advantages and team.
• Explain the growth strategy: where the company is going, what markets it is developing and what innovations it is planning.
• Gather feedback: whether investors are willing to buy shares, on what terms and in what quantities.
• Shape the market: understand demand to determine the optimal starting share price.

Bookbuilding

After the meetings, investors leave orders: how many shares they want to buy and at what price. This is called bookbuilding.

Underwriters (investment banks) collect all these bids to analyse the volume of demand, the price range and the profile of investors (hedge funds, traders, etc.).

This information is used to set a recommended offer price, which is the price at which the company officially sells its shares during the IPO (offer price).

Placing the shares on the stock market

Listing, or IPO placement, is the moment when a company sells its shares to the public for the first time on the open stock market.

It marks the transition of the company from private to public status, the first official establishment of a market price for a share and the creation of public supply and demand.

The first trading day is the moment of truth

On the day of the IPO, the company makes its official debut on the stock exchange. The first few hours are the most important because during this period, the following things happen:

• Formation of the first opening price — the stock exchange accepts buy/sell bids, balances supply/demand and determines the initial market price.
• High volatility.
• Active quoting.

What is a quote, and how is it formed?

A quote is the current market price of a stock based on recent transactions. It is not a theoretical value, but an actual price at which buyers are willing to buy and sellers are willing to sell.

Quotes are updated in real time on the stock exchange. They are made up of buyers' offers (bid), sellers' offers (ask), and the last transaction price (last price).

The role of a stabilisation agent

A stabilisation agent—usually, one of the IPO underwriters—plays a key role in maintaining the share price of a newly listed company for a limited period. The agent's main objective is to prevent excessive volatility and create an orderly market for new stocks. The agent's actions depend directly on the market dynamics of the share price immediately after listing.

Let's examine the work of a stabilisation agent in accordance with three main scenarios of market development.

The pop scenario involves rapid price growth

This scenario occurs when the share price significantly exceeds the IPO price due to high investor demand. In this case:

• The agent does not purchase any shares from the market. Its intervention is unnecessary, as the market independently supports the price.
• The Greenshoe Option is exercised when the underwriters sell more shares to investors than were originally issued by the company. In order to cover this short position, the stabilising agent purchases additional shares directly from the issuer at the IPO price.
• Otherwise, demand is satisfied and the underwriters' short position is closed without loss. The market then stabilises at a new, higher price level.

Flat scenario: the price is close to the IPO level

In this case, there is a slight fluctuation in the share price, which remains very close to the offering price. What actions does the stabilisation agent take?

• They may make small, selective purchases of shares on the open market if the price falls below the IPO level, to demonstrate support.
• If the price remains stable or above the IPO price, the agent may partially exercise the Greenshoe option to cover shares sold in excess of the limit.
• If the price fluctuates slightly below the IPO price, the agent may start buying shares on the market to gradually close the short position.

This creates the impression of stability and establishes a floor at the IPO price, giving investors confidence.

Under pressure scenario: the price falls below the IPO price

This is the most unfavourable scenario, where supply exceeds demand and the share price falls below the offering price. What does the stabilisation agent do?

• They begin to systematically purchase shares on the open market at a price no higher than the IPO price. This creates artificial demand and helps to absorb the excess supply from sellers. These purchases establish a psychologically important support level at or slightly below the IPO price, which stops further declines.
• Rather than exercising the Greenshoe option, which would be unprofitable given the lower market price, the agent uses the shares purchased on the market to cover the short position created by the sale of additional shares.

If executed effectively, these actions will slow or stop the price decline. Investors will see that there is a significant buyer who can restore confidence in the stock.

Technical listing requirements

A company's entry into the public market is not only a matter of strategy or ambition; it also requires strict compliance with the rules of the exchange on which it plans to list.

Minimum capitalisation

For instance, the New York Stock Exchange (NYSE) stipulates that a company must have a minimum market capitalisation of $40 million. The Nasdaq threshold is lower at $15 million.

The London Stock Exchange has a separate platform called AIM (Alternative Investment Market), which enables medium-sized and small companies to enter the public market. There, more attention is paid to the quality of the business model than to formal figures.

Free float

This is the percentage of shares in free circulation. On the NYSE, this figure is usually at least 1.1 million shares, whereas on the LSE/AIM, the focus is often on 25% of the capital available to investors. This is important because the market needs liquidity; investors must be able to buy and sell securities without significant price fluctuations.

Reporting and corporate governance

Public companies are required to provide financial statements that comply with either US GAAP or IFRS standards. They must also comply with the Sarbanes-Oxley Act (SOX), which enforces greater control over internal processes and auditing.

Although the LSE/AIM is less strict in this respect, investors still expect regular publications and transparency. European stock exchanges, such as Euronext and the Warsaw Stock Exchange (WSE), typically combine local regulations with EU corporate governance requirements.

How much does it cost to go public?

An IPO is an expensive undertaking that requires ambition and serious financial resources. Expenses can be divided roughly into one-off costs associated with preparing for the IPO and ongoing costs that accompany life as a public company.

One-off expenses

The largest expense is usually the services of underwriters (investment banks that organise the placement). Their commission is typically 5–7% of the capital raised on the NYSE or Nasdaq. For large deals, this amounts to tens of millions of dollars.

The next step is auditing and preparing financial statements. Companies must verify all figures in accordance with GAAP or IFRS standards, a process that can cost several million dollars. Added to this are legal fees for structuring and regulatory compliance, which also run into millions.

Another important aspect is investor relations (IR) materials, including prospectuses, marketing documents and presentations. Hiring expensive consultants is necessary to create high-quality content that both professionals and private investors will understand.

The company also organises roadshows, which involve a series of meetings with potential investors around the world. These involve expenses for logistics, presentations, and PR.

Stock exchange listing fees must also be considered. For example, Nasdaq charges a base fee of $295,000 for an initial public offering, while the NYSE charges up to $500,000, depending on the size of the company.

Recurring expenses

Public companies have higher operating costs than private companies because they are required to publish quarterly and annual reports. This incurs recurring audit expenses, which can amount to several million pounds per year. In addition, SOX requirements in the United States necessitate substantial investment in internal control and compliance.

The investor relations department is equally important, as it constantly communicates with shareholders, prepares reports and answers questions from analysts. On average, this function costs a company between several hundred thousand and several million dollars a year.

First-day success metrics

The most popular indicator is share price performance on the first day of trading. If the price rises by 20–30% compared to the offering price, this signals high demand and successful positioning.

The second essential metric is trading volume. High investor interest and liquidity are indicated by active buying and selling of shares. Conversely, low trading volumes may indicate weak investor interest and an increased risk of volatility.

Another influential indicator is the profile of investors who have purchased shares. The presence of large institutional investors (such as pension funds, mutual funds and hedge funds) among the shareholders is a sign of confidence and stability. However, if short-term speculators predominate, the company may face sharp fluctuations in its share price.

The final criterion is media and analytical coverage. Both the media and stock market analysts influence perceptions of a new public issuer. If the initial publications are positive, this creates a foundation for growth. Negative reviews can quickly undermine even a good start.

Interesting details about IPOs

Stabilisation and the greenshoe option (overallotment)

An IPO always strikes a balance between supply and demand. But what should be done when demand exceeds expectations, or conversely, when shares begin to lose value immediately after placement? This is where the stabilisation mechanism and the greenshoe option come into play.

How do these tools work? Underwriters (banks that conduct the placement) can sell up to 15% more shares than those officially offered in the IPO prospectus. This is called an overallotment option. If the share price rises too quickly, banks can use these additional shares to meet demand and prevent overheating. This helps to limit excessive growth that may resemble a bubble.

Conversely, if the share price falls, underwriters can buy the shares back from the market using the greenshoe option. This provides support and signals to investors that the organisers are ready to intervene to avoid a sharp collapse. Such stabilisation typically lasts for the first 30 days after the IPO.

This is necessary to ensure a smooth transition for the new issuer. Imagine a company that has spent years preparing for the public market, with investors having contributed millions. On the second day, the stock price falls by 40%. This would be a serious blow to the company's reputation, so stabilisation mechanisms are used to reduce the risk of excessive volatility during this critical period.

The psychological effect is also interesting. Investors know that a kind of safety net exists in the first month after an IPO. This increases their willingness to participate in the placement. This is particularly important for institutional investors with billion-dollar portfolios, who cannot afford overly risky debuts.

It is worth emphasising that a greenshoe does not always guarantee stability. If a company's fundamentals are weak or the market is in crisis, this tool will not prevent it from failing. However, in most cases, it fulfils its role by smoothing out the start and helping the company to gain time to adapt.

Quiet period

Another subtle yet critical element of an IPO is the so-called 'quiet period'. During this time, the company and its underwriters must limit their communication with the market as much as possible.

In the United States, the SEC stipulates that, from 30 days before filing for an IPO to 40 days after going public, a company cannot actively advertise its shares or disseminate information that could affect demand. The aim is straightforward: to safeguard investors from manipulation and ensure that the price is based on genuine expectations rather than PR campaigns.

During the quiet period, the company does not publish press releases containing loud announcements, executives do not give interviews, and underwriters refrain from issuing analytical reports. This can seem strange to outside observers when a large-scale IPO has just taken place, but there is little information available. However, this is a deliberate restriction that ensures the integrity of the process.

The ban on analysts from banks that participated in the placement is especially important. They cannot immediately issue positive reports on the company. This rule emerged following the scandals of the 2000s, when investment banks effectively drove up their clients' share prices through their recommendations.

Once the quiet period has ended, a wave of new reports and publications usually follows. These often affect the share price: if analysts give positive assessments, the share price rises. Conversely, if the assessments are negative, a decline may begin.

Lock-up periods

When a company goes public, new investors are concerned that the founders and venture capital funds will sell their shares on the market immediately. A sudden surge in supply can cause the price to plummet. To avoid this, a lock-up period is introduced, during which time insiders are prohibited from selling their shares.

Lock-ups commonly range from 90 to 180 days, but for large or risky IPOs, they can last up to 12 months. During this time, founders, top management, employees with options and early investors (particularly venture capital funds) remain shareholders. This signals confidence: the company and its key players are not looking to leave the business immediately after raising funds.

However, the end of the lock-up period is always a significant event for the market. Imagine the situation: after 180 days, several million new shares appear on the stock exchange, which the insiders have the right to sell. While this can dramatically increase liquidity, it also puts pressure on the price. Often, a wave of falling prices follows the end of the lock-up period if insiders actively exit.

This is an important point for funds. Firstly, a lock-up restricts the ability to swiftly secure profits. Secondly, funds must plan their exit, taking this timing into account, to avoid finding themselves in a situation where the sale of a large stake coincides with a market downturn.

Interestingly, lock-ups are not always negative. If key shareholders are in no hurry to sell after the lock-up period ends, this is perceived as a sign of confidence in the company. Investors see that management and venture capital funds believe in further growth, which stimulates new demand.

Thus, a lock-up period is a kind of waiting period. It disciplines insiders, gives the market time to adapt, and, at the same time, provides an invaluable marker for investors.

Management and control

An IPO changes both a company's financial profile and its management system. What was once flexible and under the control of the founders or venture investors in a private environment becomes a complex structure with numerous restrictions and new centres of influence in a public company.

Share dilution

When a company issues new shares for a public offering, the percentage owned by existing shareholders decreases. For example, if the founder owned 20% of the company before the IPO, this percentage may fall to 15% after the issue of new securities. However, this does not necessarily mean that they have lost value — the absolute value of their shares may increase due to higher capitalisation. However, control over the company becomes less concentrated.

This raises the question of the risk of losing control. Founders often worry that public investors and large funds will be able to influence strategic decisions. To avoid this, many technology companies use a dual-class share structure.

This means that there are two or more classes of securities. For example, there are Class A shares for public investors, which entitle the holder to one vote per share, and Class B shares for founders, which entitle the holder to ten votes per share. Google (Alphabet), Meta (Facebook) and other tech giants have opted for this model. It enables companies to raise capital while maintaining control over a small group.

However, dual-class structures are regularly criticised by regulators and some investors. The argument is simple: public shareholders bear the risks, yet lack sufficient influence over management. This creates potential conflicts and increases transparency requirements.

Expansion of the board of directors

A private company may have a small board consisting of a few investors and founder representatives. In contrast, a public company is required to include independent directors who are not directly involved in the business. Their role is to protect the interests of minority shareholders.

In addition, mandatory board committees are created:

• The Audit Committee monitors financial reporting and the work of external auditors.
• The Compensation Committee determines the remuneration policy for top management, including options.
• The Nomination and Corporate Governance Committee deals with issues related to the composition of the board and compliance with governance standards.

Publicity and compliance

While private companies may have minimal reporting requirements that are only accessible to investors, this changes completely after an IPO. The company must report to the market quarterly and annually, and publish important events immediately.

In the US, the main forms are:

• Form 10-K: an annual report containing a detailed description of the company's finances, risks, and strategy.
• 10-Q: a quarterly report with interim results.
• 8-K is used for special announcements about significant events (mergers, change of CEO, lawsuits, etc.).

In Europe, there are equivalents — regular and interim reports in accordance with EU directives and national regulatory standards. Companies are required to comply with the principle of continuous disclosure, meaning that any information that could affect the share price must be made public immediately.

This creates serious pressure. For instance, a minor error in a report could result in shareholders taking legal action. In the US, this risk is particularly high, as lawyers specialise in class action lawsuits when companies conceal negative information or make misleading statements. This is why public companies invest millions in compliance departments, legal services, and internal policies.

Insider trading is a separate issue. After an IPO, a company must establish strict rules for its employees and managers. They cannot buy or sell shares based on non-public information. To this end, insider policies exist, as do blackout periods before the release of financial statements and strict transaction controls.

Publicity means transparency, which increases investor confidence. However, it also incurs ongoing costs and risks. Founders who are accustomed to the freedom of the private sector may feel uncomfortable because their every move is now subject to market scrutiny.

Market window

A company's readiness is not the only factor in an IPO; the market environment must also be favourable. Even the strongest businesses are sometimes forced to wait because the market environment is closed to new listings. This is known as a 'market window'.

What determines it? First and foremost, macroeconomic factors such as interest rates, inflation and economic growth. When interest rates are low, investors seek returns in riskier assets and demand for IPOs increases. Conversely, when rates are high, capital flows into bonds, and it becomes difficult for new issuers to raise funds.

If recent IPOs have performed well, investors are eager to invest in new issuers. However, if several high-profile debuts have failed, the window may close for months or even years.

Companies and their advisors closely monitor these factors. Sometimes it is better to postpone a placement than to go public at an unfavourable time. There are also extreme scenarios where IPOs are cancelled altogether. This has even happened to major players. For instance, WeWork was compelled to withdraw its IPO in 2019 due to negative market sentiment and issues with its business model.

Long-term IPO dynamics

Typical patterns after placement

Research shows that, on average, company portfolios tend to underperform broad market indices (e.g. the S&P 500) by 3–5 years following an IPO. This is due to several factors:

• Overvaluation at launch. Investor demand and underwriter marketing push the price above the original cost.
• Development costs. Companies often use the capital raised for aggressive expansion, which puts pressure on margins.
• The pressure of public status. The market demands consistent performance and quarterly results, which young businesses frequently find difficult to achieve.

These factors create a typical trajectory: initial growth is followed by a period of correction as the market analyses the company's actual results.

Why do average returns lag?

There are three key reasons why the average investor who buys shares after an IPO receives more modest returns after three to five years.

• Selection in hot sectors. While some companies live up to expectations, most still face competition and falling multiples.
• Lock-up waves. When the 180-day or annual lock-up period ends, insiders sell their shares on the market, which puts pressure on the price.
• Information asymmetry. Investors in the public segment learn about problems with a delay.

Consequently, the average IPO performance appears modest, with many companies either disappearing due to M&A activity or remaining small caps indefinitely.

What sets the winners apart?

There is a group of companies that experience explosive long-term growth after their IPO. These companies can be considered exceptions that form portfolio legends. They have several characteristics in common:

• Technological advantage, a network effect or a unique business model that is difficult to copy.
• Unlike companies that burn money on marketing, the successful ones gradually build their profitability structure, showing growth while maintaining control over expenses.
• Public status dramatically increases management requirements, and it is teams that have been able to adapt quickly that succeed in the long term.

Benefits of an IPO

For many private companies, an IPO is a moment of triumph.

Raising significant investment

The main and most obvious benefit of an IPO is that it can raise a really large amount of money. The company sells some of its shares on the open market and raises funds.

An alternative to private equity

An IPO is an alternative to VC and debt financing. In the case of venture capital, the company transfers control (in whole or in part) to new investors. In the case of debt, the company takes on the obligation to pay interest.

An IPO allows the company to raise funds without incurring debt and without significant dilution of management, if the shareholder structure is properly constructed.

Exit for early investors

An IPO allows venture capital funds, business angels, founders and early employees to monetise their investment. In a private company, it is either difficult or impossible to sell shares.

An IPO, on the other hand, turns the shares into a liquid asset that can be freely realised on the market (after the lock-up period).

Follow-on: a method of raising capital after an IPO

A follow-on offering, also known as a secondary offering or follow-on public offering (FPO), involves the issuance of additional shares after an IPO. This can be carried out by the company itself (a primary offering) or by existing shareholders, including venture capitalists (a secondary offering). Although this may sound confusing to beginners, in practice, a follow-on is a vital means of raising capital and managing positions.

An IPO often does not allow for the full realisation of investments due to the lock-up period, which is usually six months. During this time, it is prohibited to sell shares. Follow-ons provide an exit opportunity. Once the lock-up period has ended, the fund can sell some of its shares via an organised placement, thereby maintaining market discipline. This is important to avoid sharp pressure on the share price if the sale were to take place chaotically on the open market.

For the company itself, a follow-on provides an alternate way to raise additional capital without resorting to traditional debt instruments. Fast-growing technology companies, for example, regularly require further investment in development, marketing or global expansion after an IPO. A secondary placement enables this growth to be financed by leveraging the confidence of public investors.

Interestingly, the market clearly distinguishes between healthy and alarming follow-ons. If a company raises money for development and expands in a growing sector, this is seen as a positive sign. Investors are willing to support it. However, if a follow-on appears to be an attempt to cover operating losses without a strategy, it causes mistrust. Some biotech companies regularly issue new shares just to survive, for example, which leads to a dilution of value for existing shareholders.

Shares as M&A currency

After an IPO, a company gains access to public capital and a new currency: its own shares.

Shares can be used as currency when a company does not pay for the acquisition of another cash business, but instead offers its own shares. Consequently, the seller receives a stake in the combined structure rather than money. Why does this work? Firstly, shares in a public company have market value and liquidity, making them almost equivalent to money. Secondly, it enables the company to preserve cash for operating activities by leveraging its stock market status as a strategic asset.

A classic example of this is the deal between Facebook and WhatsApp. Although the 2014 deal was worth $19 billion, most of the payment was made in Facebook shares. This enabled the company to acquire WhatsApp without experiencing a devastating cash outflow, and its shareholders effectively became co-owners of Mark Zuckerberg's empire.

Recognition

A public company is a mark of quality, as the preparation for an IPO includes a public financial audit, due diligence and risk assessment.

Passing this filter increases customer confidence and improves the perception of the company by its partners.

Stock option plans and equity compensation

The IPO paves the way for full-fledged employee stock option plans (ESOPs), where employees are given a stake in the company.

The benefits? Attracting top talent, retaining key employees and creating a results-oriented culture.

Key risks of an IPO

Initial overvaluation of the company

Before an IPO, companies are often in the spotlight: the media, analysts, banks — all discussing potential profits and ambitions. In this hype, the valuation of the company can be far higher than its real value. This creates a risk for the investor: you're buying shares at an inflated price.

Financial opacity or poor performance

While public companies are required to report regularly to shareholders, early financial reporting before an IPO can be limited or difficult to analyse. As a result, companies might go public without earnings in the hope of an uncertain future success.

An investor who buys shares in an IPO is frequently acting on faith rather than fact.

Lock-up period and potential crash afterwards

After an IPO, most employees, senior managers and early investors are subject to a lock-up period — a ban on selling their shares for a certain period. This is to prevent massive selling by insiders in the immediate aftermath of an IPO.

But when the lock-up period expires, shares often come under pressure: those who have owned them for years want to lock in their profits. The release of numerous shares into the market causes the price to fall. An investor who bought a stock immediately after the IPO may find himself in the red.

Short-term market pressure

This occurs when the share price falls due to external factors, such as a general market downturn, negative news or speculative selling, rather than fundamental problems with the company.

There can be many reasons for such pressure. For example, a major institutional investor may sell shares for internal reasons; short selling may occur; or panic may spread among small investors, who start selling shares out of fear.

Loss of trade secrets due to public disclosures

Going public is like lifting the veil that hides a company's entire business mechanism. In order to attract investors, a company must disclose a large amount of confidential information, including details of its financial performance, strategy, technology, and customer base. This creates a paradoxical situation: to obtain capital for growth, a company must sacrifice some of its trade secrets, which often form the basis of its competitive advantage.

Once information is in the public domain, competitors can copy successful technologies, poach key employees or exploit strategic data against the company. A balance must be struck between the transparency required by the market and protection. It is therefore important to determine which information can be disclosed without causing harm, and which should be protected by patents and other legal instruments wherever possible.

Minority shareholder activism

Once a company goes public, its shares can be purchased by thousands, or even millions, of small investors, who are known as minority shareholders. Although these investors hold small stakes, they have voting rights and can join forces to influence management decisions. This phenomenon, known as minority shareholder activism, can drive positive change, but it can also cause constant tension.

On the one hand, activists can force management to be more accountable and shareholder-focused. They can demand greater efficiency, more transparent financial policies or even the resignation of incompetent managers. However, their pressure may also be directed towards short-term gains that conflict with the company's long-term strategy.

High volatility in the early months

The first few weeks after an IPO are a rollercoaster ride. On the first day, the share price can soar, and on the second day, it can fall. This is not always due to real news or business changes. Investors simply don't know how to value a new company. There is no familiar reporting history; analysts make forecasts based on assumptions, and the market lives on sentiment.

Marketing noise and bluff

An IPO is not just a financial transaction, it's a show. Companies hire PR firms, prepare investor presentations, and make promotional videos. They have to create excitement. Sometimes it works, sometimes it doesn't, and it turns into a bubble.

A bad time to go to market

Even the perfect company can fail at an IPO if the market is in bad shape. Geopolitical tensions, rising interest rates, banking crises or falling indices can wipe out demand for shares, and there's nothing you can do about it.

The problem is that IPOs are prepared in advance, sometimes for years. Companies can't pause and react to news that changes every week. It's a one-way trip that can't be stopped.

Alternatives to the IPO

The IPO is a classic, but not for everyone. Several alternatives have emerged in recent years: SPACs, direct listings and private placements.

SPAC (Special Purpose Acquisition Company)

A SPAC is a non-operational company set up for the sole purpose of launching an IPO. It raises money from investors and then merges with a real company that wants to float. This makes it possible to bypass the traditional lengthy IPO process.

How it works

• A SPAC is formed (also known as a 'blank check company').
• It goes public and sells its shares without having a business.
• After raising capital, the SPAC has 18–24 months to find a target company.
• If the deal goes through, the target company automatically goes public.

Advantages of SPACs

• Faster than an IPO. The process takes 3–6 months, whereas an IPO can take years.
• Less bureaucracy. Some checks and formalities associated with an IPO are either simplified or eliminated.
• Suitable for non-standard companies. Technology or high-risk companies find it easier to go through a SPAC because investors have already agreed to the general terms and conditions in advance.

Disadvantages of SPACs

• Lack of transparency. Tight deadlines and less scrutiny of documentation can lead to unpleasant surprises after listing.
• Conflicts of interest. SPAC founders receive large stakes of shares virtually for free. They therefore benefit from any deal, even a poor one.
• Poor results after IPO. Many SPAC companies lose value after listing when the market sees the real numbers.
• Time pressure. If a SPAC doesn't find a merger partner within 2 years, it has to return money to investors.

Direct listing

Unlike an IPO or SPAC, a direct listing does not involve raising new capital. The company simply lists its existing shares on the stock exchange. There is no new issue, no roadshow and no underwriting by banks.

Companies such as Spotify, Slack and Coinbase have chosen this route. They all already had a strong brand, a stable customer base, and enough liquidity for the market to set a fair price on its own.

Pros of direct listing

• Lower costs. No need to pay millions of dollars to banks to set up the process.
• No dilution. The shares of the founders and early investors are not diluted, as the company does not issue new ones.
• The market sets the price. The share price is not set by banks and large investors, but by supply and demand.
• No lock-up period. In IPOs there is often a restriction on the sale of shares to insiders, but here, there is no such ban.

Disadvantages of direct listing

• Inability to raise new capital. If the company needs capital, this format will not help.
• High volatility. Without prior pricing and the stabilising influence of banks, shares can be very volatile.
• The requirement of a strong brand. If the company does not have a strong reputation or brand, a direct listing may fail.
• Independence is both a plus and a minus. All the procedures, paperwork, and preparation are up to the company.

Private Placement

This is a completely different approach when the company raises money not by going public, but by selling shares (or other securities) to a limited number of investors. These are usually large funds, strategic partners or institutional investors. No stock exchange, no public reporting. Just a private transaction.

Advantages of private placement

• Confidentiality. Terms, valuation, and deal structure are not disclosed.
• Flexibility. Specific terms can be negotiated, such as preferences, privileges, depreciation protection, etc.
• Speed. The deal can be completed in weeks or even days.
• Low regulatory burden. Everything is defined by private contract, not government oversight.

Disadvantages of private placement

• Limited range of investors. The company can only work with qualified players, as individuals are usually excluded.
• Low liquidity. Investors cannot easily sell their shares, as they have to wait for the next round or exit.
• Dependence on reputation. All decisions are based on trust in the founders, business model and financial performance.

Reverse merger/APO

One alternative tool is a reverse merger, also known as an Alternative Public Offering (APO).

How it works

A private company buys or merges with an existing shell company that has stock market status but is not actively trading. This allows the private business to bypass most bureaucratic procedures and gain immediate access to the stock market.

Pros

• Speed. The process can be completed in several months instead of taking a year or more.
• Cost: Underwriter and PR campaign expenses are significantly lower.
• Flexibility: The company is not dependent on the market window for an IPO, which often determines the success of the offering.
• Retaining control: Founders typically retain a larger percentage of equity.

Cons

• A shell company may have hidden legal or financial problems that the new business effectively inherits.
• Investors are cautious about such structures — the market is aware of cases of abuse where companies with questionable business models were taken public through reverse mergers.
• After an APO, the liquidity of shares may be limited, as there is not always institutional support or analyst attention.

Regulation A+

Another option is Regulation A+. This is a type of mini-IPO which allows companies to raise to $75 million from a wide range of investors, bypassing the complex requirements of a traditional offering.

How it works

A company that wants to take advantage of Reg A+ must register its offering with the SEC, but the requirements are much simpler. There are two categories:

• Tier 1: up to $20 million over 12 months (with minimal reporting requirements and mandatory state-level approval).
• Tier 2: up to $75 million over 12 months, with regular financial reporting but no state restrictions.

Regulation A+ essentially enables crowdfunding on a larger scale: a company can raise funds from both institutional and retail investors.

Advantages

• Accessibility for small companies.
• It provides direct contact with retail investors, essentially combining marketing and financing.
• Lower costs compared to an IPO.
• The opportunity to build a base of loyal customer-investors.

Disadvantages

• Volume limits.
• Lower level of trust from institutional investors.
• High marketing costs are required for powerful campaigns to sell the offering to a wide range of people.

Mini-IPO

The so-called 'Mini-IPO' is often referred to as 'Regulation CF' (crowdfunding) or its extended forms.

This is how it works

The idea is to enable companies to raise funds directly from investors via online platforms, thus democratising access to venture capital.

A Mini-IPO allows up to $5 million (the Regulation CF limit) to be raised within 12 months, but variations to this limit are possible. The process is simpler than Reg A+: no extensive reporting is required, just basic financial documentation submitted through registered platforms.

Pros

• Speed and accessibility: market entry is possible within a few months.
• Minimal requirements for the company.
• Direct interaction with investors through online channels.
• A community forms around the brand.

Cons

• Limited capital. This is insufficient for large-scale projects.
• There is a risk of a diluted investor base, as many small shareholders create additional administration.

The first Ukrainian company on NASDAQ

In the summer of 2025, the Ukrainian telecoms giant Kyivstar made history by becoming the first major Ukrainian company to be listed on an American stock exchange via a SPAC.

Transaction structure and valuation

Kyivstar was listed through a merger with Cohen Circle Acquisition Corp., a special purpose acquisition company (SPAC). As a result of the transaction, Kyivstar received a listing on NASDAQ under the ticker symbol KYIV. The initial valuation of the business was approximately $2.21 billion, rising to $2.61 billion after going public. As part of its debut, the company raised $178 million in new capital.

Notably, the parent company VEON retained 89.6% of the shares and plans to gradually reduce its stake to 80%. This is a typical scenario for SPAC structures, whereby a strategic investor wishes to remain a key stakeholder while enabling new shareholders to participate in the company's growth.

The first days on the stock exchange

The debut was dynamic. The initial price of $14 per share fluctuated rapidly. During the first hours of trading, the market responded with an increase of over 30%, though the price subsequently dropped to approximately $12.

This is a common occurrence in IPOs and SPACs: investors evaluate the asset, considering the risks associated with the country, industry, and broader geopolitical context. Despite these fluctuations, Kyivstar has established itself as one of the largest Ukrainian companies in which global funds can invest.

Why is this important for Ukraine?

The Kyivstar deal was a litmus test for the Ukrainian market. Firstly, it proved that large-scale deals can be conducted at the Nasdaq level even during wartime. Secondly, it paved the way for other Ukrainian companies — in technology, agriculture, and infrastructure — seeking international capital.

A key factor in its success was Kyivstar's positioning as not only a traditional telecom operator, but also a platform for digital services such as mobile banking, data services and digital security. This increases its investment attractiveness, as the market sees potential for expansion after the war.

What happened after the listing?

Initial reports showed stable profits and an increase in capitalisation to $2.8 billion — an increase of $600–700 million on the initial values. This is a rare example of a Ukrainian company managing not only to enter the international stock market, but also to maintain a positive trend in the first few months.

This sends an important signal to investors that, despite macro risks, Ukrainian businesses can be predictable and profitable. For Kyivstar, this means access to cheaper capital, greater publicity and the opportunity to develop long-term IT and digital infrastructure projects.

Other examples of Ukrainian IPOs

Ferrexpo

In 2007, the mining company Ferrexpo held an IPO on the London Stock Exchange (LSE). It raised approximately $419 million for 25% of its shares, resulting in a total market capitalisation of $1.67 billion.

Kernel

Kernel, one of Ukraine's largest agricultural holdings, was listed on the Warsaw Stock Exchange (WSE) in November 2007. The company successfully placed its shares, raising around $218 million.

Astarta

The agro-industrial holding company conducted an IPO on the WSE in August 2006. It raised $32 million and achieved a market capitalisation of $156 million.

Well-known international IPOs that began with venture capital funding

Snowflake

• Year: 2020
• Funding: Sutter Hill Ventures, Altimeter Capital and others.
• Exchange: NYSE
• Pre-IPO valuation: $12.4 billion/$33.3 billion.
• Demand and pricing: Extremely high. The pricing ($120) was significantly higher than the initial expectations of $75–85.
• Lock-up: 180 days

What happened over the next six months? The stock price increased by 200% on the first day and continued to grow, making this one of the most successful IPOs in history.

The lesson is that underestimating a company at launch can create euphoria in the market, but this requires an extremely strong business model and prospects.

Airbnb

• Year: 2020
• Funds: Sequoia Capital, Andreessen Horowitz, etc.
• Exchange: Nasdaq
• Pre-IPO valuation: $18 billion/$47 billion.
• Demand and pricing: Demand was extremely high, enabling the share price to increase significantly to $68.
• Lock-up: 180 days. However, some employees were permitted to sell up to 15% of their shares during the initial trading days, which was an unusual move but helped to prevent a sharp price collapse once the full 180-day lock-up period had ended.

What happened over the next six months? The shares doubled on the first day of trading, and the company continued to show steady growth.

The lesson here is that good timing — the IPO took place after the initial uncertainty surrounding the pandemic — and a strong brand can lead to remarkable success despite initial market doubts.

Uber

• Year: 2019
• Funds: Benchmark, Menlo Ventures, SoftBank, and others.
• Exchange: NYSE
• Pre-IPO valuation: $76 billion/$82.4 billion
• Demand and pricing: Demand was lower than expected, resulting in a price of $45, which was at the lower end of the expected range.
• Lock-up: 180 days

What happened over the next six months? Shares fell by almost 30% in the first six months.

Lessons: Excessively high valuations and a lack of profitability can lead to investor disappointment, even among large, well-known companies.