Initial public offering (IPO) is a form of raising capital in which shares of a company are sold to institutional investors and retail (individual) investors. One or more investment banks assist with the launch of an IPO by guaranteeing the price (underwriting) and arranging for the stock to be sold on one or more stock exchanges. In undergoing an IPO, a company is no longer privately owned. The cost and reporting requirements for access to this type of capital is high. The primary costs involved include banking and legal fees and ongoing reporting requirements.
IPOs can be used to raise new equity capital for companies or to monetize the investments of private shareholders. IPOs also enable easy trading of equity holdings.
While it is rare for early-stage companies to undergo and IPO, if done, it most often occurs in the life sciences field where capital needs are very high prior to commercial success.