An IPO, or initial public offering, is the process of offering shares of a private corporation to the public in a new stock issuance for the first time. It is a significant milestone for a company, as it allows the company to raise equity capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors. Meanwhile, it also allows public investors to participate in the offering.

When a company lists its securities on a public exchange, the money paid by the investing public for the newly issued shares goes directly to the company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offerings) as part of the larger IPO. An IPO, therefore, allows a company to tap into a wide pool of potential investors to provide itself with capital for future growth, repayment of debt, or working capital.

The IPO process is typically underwritten by one or more investment banks, who also help to market, gauge demand, set the IPO price and date, and more. After the IPO, when shares are traded in the market, money passes between public investors. For early private investors who choose to sell shares as part of the IPO process, the IPO represents an opportunity to monetize their investment.

It is important to note that investing in an IPO carries risks, and there are arguably more risks with IPOs than buying the shares of established public companies. IPO stocks, which are unproven, may not live up to their potential, and it is important to vet the issuing companies carefully before investing in IPO stocks.