IPO

An initial public offering (IPO) is the process of selling shares of a private company to the public for the first time. Listed on NYSE, Nasdaq, or international equivalents, an IPO is traditionally the marquee exit path for venture-backed companies, with investment-bank underwriters pricing the offering, allocating shares to institutional buyers, and the company raising primary capital in the process. It is also one of the rarest exit outcomes statistically, despite getting the bulk of the press coverage.

The standard process runs roughly: file a confidential S-1 with the SEC, respond to SEC comments through 2 to 4 rounds, conduct a Roadshow where executives pitch institutional investors over 1 to 2 weeks, price the offering the night before listing, and begin trading the next morning. Underwriter fees historically run 5 to 7 percent of capital raised, plus other transaction costs that take the all-in to roughly 8 to 12 percent for typical deals. The Jumpstart Our Business Startups (JOBS) Act of 2012 created the "Emerging Growth Company" category, allowing companies with under $1.235 billion in revenue (2024 threshold) to file confidentially and use simplified disclosure. Despite the visibility of IPOs, the math is brutal: across the typical venture portfolio, IPO is the exit path for roughly 5 to 10 percent of venture-funded startups in normal years, and the IPO window swings widely with market conditions (record volume in 2020 to 2021, near-frozen 2022 to 2023, partial recovery starting in 2024). The companies that IPO'd post-2020 (Airbnb, DoorDash, Snowflake, Coinbase, Rivian, Reddit, Klaviyo, ARM) shape the public narrative; the thousands that quietly got acquired or wound down don't.

Worked example: Klaviyo's September 2023 IPO economics. Klaviyo (NYSE: KVYO) was the first meaningful VC-backed SaaS IPO after the 2022 freeze, priced at $30 per share above the $27-29 target range. The headline numbers underneath the press release:

Item	Figure	Notes
Shares sold to public	19.2M	Mix of primary (company) and secondary (existing holders)
Gross proceeds	$576M	At $30 price
Underwriter discount (gross spread)	$25M	~4.3% of proceeds; reduced rate reflecting Klaviyo's profitability and size
Other transaction costs	$15M	Legal, accounting, SEC fees, printing, NYSE listing
Net proceeds to company (primary)	$345M	Of the $576M, primary portion was $375M gross, $345M net after fees
Day-1 price	$36.75	+22.5% pop from $30 IPO price
Day-1 underpricing dollars left on the table	~$130M	Difference between IPO price and day-1 close, multiplied by shares sold
Founder + early-employee lockup	180 days	Standard. First sale window opened March 2024.
Share price 12 months post-IPO	~$36	Effectively flat from day-1 close.

Three things this example shows that the press coverage usually skips. First, the $130M of "underpricing" is real money that left the company; pricing the IPO low to ensure a pop is the underwriter's job and the company's quiet cost. Second, the 180-day lockup means founders and employees cannot sell at the day-1 pop, and Klaviyo's price was roughly flat 6 months later when the lockup opened, so the pop benefited only the institutional allocators who got IPO-price shares. Third, "net proceeds to the company" is far smaller than the headline gross proceeds because secondary sales (existing investors selling at IPO) don't bring cash into the business at all. For founders evaluating whether to push for an IPO vs. an acquisition, the real comparison is net proceeds to the company plus founder liquidity post-lockup, not the press-release valuation.

What founders get wrong: Building the company around "IPO-readiness" prematurely. The reporting, audit, internal-control, and SOX-compliance infrastructure that a public company requires costs $2 to $5 million annually to maintain at minimum. Companies that build that out at Series C, expecting to IPO at Series D, often spend years carrying public-company costs as a private company and then watch the IPO window close. Build for the business you have, not the IPO you hope for.

Related: Acquisition · Exit Strategy · Direct Listing · Lockup Period · Secondary Sale

FAQ

What is an IPO?
An initial public offering, the process of selling shares of a private company to the public for the first time on a stock exchange. Traditionally the marquee exit path for venture-backed companies. Underwriters price the offering, institutional investors get share allocations, and the company raises primary capital.

How much do IPO underwriters charge?
Underwriter fees historically run 5 to 7 percent of capital raised, plus other transaction costs (legal, audit, listing fees) that take the all-in cost to roughly 8 to 12 percent for typical deals. Larger IPOs sometimes negotiate lower percentage fees but higher absolute dollars.

What percentage of startups actually IPO?
A small minority. Across a typical venture portfolio, IPO is the exit path for roughly 5 to 10 percent of venture-funded startups in normal years, with significant variation by IPO-window conditions. Most successful exits are acquisitions or secondary transactions, not IPOs.