What is an IPO (Initial Public Offering)?

An Initial Public Offering, or IPO, refers to the process through which a private company offers its shares to the public for the first time. This is a significant event in a company's lifecycle as it transitions from being privately held to publicly traded. The IPO allows the company to raise capital by attracting a wide range of investors, which can be used for expansion, research and development, or paying off existing debt.

In doing so, the company becomes subject to the regulatory requirements of a public entity, including the need to disclose financial information and adhere to various governance standards. This process typically involves underwriters who help determine the offer price, buy the initial shares, and then sell them to the public. The excitement surrounding an IPO can lead to high demand, and this can influence the stock price after the launch. Understanding an IPO is crucial for grasping concepts related to capital markets and the investment landscape.