What Is an IPO?
Initial public offerings occur when a company sells shares to the public for the first time. The process transforms a privately held company into a publicly traded company. Companies pursue IPOs to raise capital, to pay off existing investors, and to make access to capital easier in the future.
Shares trade freely in the open market after the IPO. The price of the shares and their number decide the company’s market value.
Biotechnology companies often need a great deal of capital to bring new products to market. This makes an IPO an attractive prospect for them. Many tech companies undergo IPOs to pay off existing investors, such as venture capital firms who invested in the company while it was still private.
A company that undergoes an IPO must file a prospectus. This report details its operations and its recent financial history. These documents are lengthy, but they’re required reading for investors. They’re filed with the U.S. Securities and Exchange Commission (SEC) under Form S-1 in the U.S., or in amended form in S-1/A filings. They may appear under other names in other countries.1