What is an IPO?
An IPO is the process by which a privately held company first offers its shares to the public on a stock exchange (such as the LSE in the UK or NASDAQ in the US). This transition transforms the company from being accountable only to its founders and private investors to being accountable to thousands of public shareholders and financial regulators.
The IPO is considered the pinnacle of the exit strategy and is a massive liquidity event for founders, employees, and venture capitalists, who can finally sell their accumulated shares for cash.
The Price of Going Public The process is notoriously expensive, complicated, and time-consuming:
- Regulatory Burden: The company must comply with stringent financial reporting standards (e.g., IFRS/GAAP) and rules set by financial regulators.
- Underwriters: Investment banks (underwriters) are hired to determine the share price, market the shares to institutional investors, and manage the risk. They take a significant cut of the funds raised.
- Cost: Legal, accounting, and banking fees often run into millions of pounds.
IPO vs. Acquisition While the IPO is high-prestige, it is extremely rare. Less than 1% of venture-backed companies achieve an IPO; the rest are typically acquired through a merger or acquisition (M&A). Going public requires sustained, predictable hyper-growth that few companies ever achieve.
Key Takeaway: An IPO is not the end goal; it's a massive administrative shift. It provides liquidity and capital, but trades founder control for public accountability.
