An initial offering: what the buyer is actually purchasing
beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
An initial public offering is the sale of shares to a wide circle of investors, followed by the security's admission to the exchange.
Who is selling
Either the company itself, issuing new shares and receiving money for growth. Or existing shareholders selling their stakes — in which case the money goes to them rather than into the business.
The difference is fundamental and stated in the offering documents. Founders selling down is not a bad signal in itself, but it does mean no new money reaches the company.
Information asymmetry
The seller knows more about the company than the buyer and chooses when to sell. The moment chosen is one when the business looks good and the market is willing to pay.
Allocation
When demand is high, orders are filled only in part. A paradoxical consequence: in offerings that turn out well you receive a small fraction of your order, and in the disappointing ones you receive all of it.
The lock-up
After the offering, large shareholders are usually barred from selling for a set period. Its expiry is a date known in advance, at which additional supply may reach the market.
What to do
Read the offering documents: where the money goes, who is selling, what the valuation looks like against comparable listed companies. And remember that no trading history means no data for any analysis of price behaviour.
Related: Market capitalisation and free float: two different sizes of the same company and Where to find a Russian company's accounts.
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Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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