IPOs and How Companies Go Public
When you read that a company has "gone public," a very specific, carefully orchestrated financial process just happened behind that phrase — one that turns a privately owned business into something anyone with a brokerage account can own a piece of, and it's worth understanding exactly how that transformation works.
The journey: private company → IPO → public company
A company usually starts life as a private company — owned by its founders, early employees, and perhaps a small number of venture capital or private equity investors (covered in Unit 8), with shares that aren't available to the general public and aren't traded on any exchange. As the company grows and needs larger amounts of capital than private investors can easily provide, it may choose to conduct an initial public offering (IPO) — the process of offering shares of a private company to the public for the first time, converting it into a public company whose shares then trade freely on a stock exchange. From that point forward, anyone with a brokerage account can buy or sell its shares on the secondary market, as covered in Lesson 2.1.
Why companies go public — and why some don't
Going public offers real advantages: it raises a large amount of capital in one transaction, gives early investors and employees a way to convert their equity into cash, raises the company's public profile and credibility, and gives the company "currency" (publicly traded stock) it can use to acquire other companies. But it comes with real costs too: public companies face extensive financial disclosure requirements, intense scrutiny from analysts and shareholders, pressure to deliver strong results every single quarter, and significant legal and compliance expenses.
Some highly successful companies deliberately choose to stay private for far longer than the market might expect, or indefinitely — for example, avoiding quarterly earnings pressure, keeping strategic decisions confidential from competitors, or simply because their existing private investors (venture capital and private equity firms) are willing to provide all the capital the company needs without going public at all.
The role of investment banks in an IPO
Investment banks act as underwriters for an IPO — they advise the company on how to structure the offering, help determine an appropriate price range for the shares based on investor demand and comparable companies, and typically commit to buying the shares from the company and reselling them to public investors, taking on some of the risk that the shares might not sell well. In the lead-up to an IPO, underwriters run a roadshow — a series of presentations to large institutional investors to gauge interest and demand — which heavily informs the final IPO price. Getting this price right is a genuinely difficult balancing act: price it too high, and the stock could fall sharply once trading begins, disappointing new investors; price it too low, and the company leaves money on the table that it could have raised at a higher price.
Lock-up periods
Immediately after an IPO, early investors, founders, and employees typically cannot sell their shares right away — they're bound by a lock-up period, a contractual restriction, usually lasting 90 to 180 days after the IPO, that prevents company insiders from selling their shares. Lock-up periods exist to prevent a flood of insider selling from crashing the stock price immediately after it goes public, which would badly damage confidence among the new public shareholders who just bought in. When a lock-up period expires, it's common to see a wave of increased selling and downward price pressure, as insiders who have been waiting finally become free to cash out some of their holdings.
Recent Southeast Asia IPOs
Southeast Asia's most prominent recent example is Grab Holdings, the Singapore-headquartered ride-hailing and food delivery "super-app," which went public in December 2021 via a merger with a SPAC (special purpose acquisition company) — an alternative route to going public where a company merges with an already-listed shell company instead of running a traditional IPO roadshow. At the time, it was one of the largest SPAC mergers ever completed, listing Grab on the NASDAQ rather than on SGX, a decision that drew attention in Singapore given Grab's local roots. Closer to home, SGX has also hosted a steady stream of REIT (real estate investment trust) IPOs in recent years, such as Digital Core REIT's 2021 listing — a reminder that "going public" in Singapore very often means a REIT raising capital to buy income-producing properties, a different flavor of IPO from the high-growth tech listings that dominate U.S. headlines.
Why might a company's stock fall on its first day of trading even after a successful IPO?
Reveal Answer
A "successful" IPO usually just means the company raised the amount of capital it wanted, at a price it was happy with — it says nothing about how the stock will trade once the public gets to buy and sell it freely. Several things can cause a first-day decline even after a successful raise: the IPO price, set by the underwriters based on roadshow demand, may still turn out to be higher than what the broader public market is willing to pay once trading opens; some initial investors who received shares directly from the IPO ("flippers") may sell quickly to lock in a quick profit, adding selling pressure; and broader market conditions on the day of listing (a market-wide downturn, for instance) can drag the new stock down regardless of the company's own fundamentals. None of this necessarily means the IPO failed — the company still received its capital at the agreed price — it simply means the stock's post-IPO trading price is a separate, ongoing verdict from the market, decided fresh every single day rather than fixed by the IPO itself.