Equity capital markets is the part of a bank that helps companies sell shares to investors, and the initial public offering is its signature product: the moment a private company becomes one anyone can buy on an exchange. This deck walks you through what going public actually changes, who receives the money when shares are sold, what the underwriting bank is being paid for, and how a price that starts as a wide range becomes a single number the night before trading. You’ll also meet the pieces interviewers love to probe, lock-ups, greenshoes, follow-ons and the first-day pop. No deal experience assumed.
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Card 1 of 16
What does it actually mean for a company to go public, and what changes the day it does?
Going public means selling shares to public investors and living under public disclosure from then on.
A private company’s shares are held by a small, closed group, founders, employees, maybe a private equity firm, and nobody else can buy in. Going public means selling shares to public investors so that anyone can own a piece and trade it on an exchange. From that day the company has thousands of owners it has never met, a share price that moves every second, and a legal duty to publish audited financial results on a fixed schedule. The business is the same, the accountability around it is not.
Card 2 of 16
Northbay Logistics’ founder asks why she should go public at all when a private equity firm has offered to fund the business quietly. What do you tell her about both sides?
An IPO buys capital, currency and liquidity in exchange for control, cost and permanent scrutiny.
The case for is real money and real optionality: cash to fund growth or repay debt, a traded share price that can be used to pay for acquisitions and compensate employees, and a way for early owners to eventually sell down. The case against is just as real: underwriting fees, ongoing audit, legal and compliance costs, competitors reading your margins in a public filing, and a management team judged every quarter on numbers it cannot always control. Plenty of good companies stay private for exactly those reasons, and a thoughtful answer says so.
Card 3 of 16
You’re drafting the offering summary for Calder Foods and the CFO asks who actually receives the money from each share sold. How do you explain primary versus secondary shares?
Primary shares raise new cash for the company, secondary shares just cash out existing holders.
Primary shares are brand-new shares the company creates and sells in the offering, so the proceeds land on the company’s balance sheet and the total share count rises. Secondary shares already exist and are being sold by current owners, founders or a private equity sponsor, so that cash goes to them and the company receives nothing and issues nothing. Most deals mix the two. If Calder sells 10 million shares, 6 million primary and 4 million secondary, only the 6 million funds the business, which is the first thing to check before you model what the proceeds pay for.
Card 4 of 16
What does the underwriting bank actually do in an IPO, and what is it being paid for?
The underwriter prepares, prices and markets the deal, then buys it and carries the risk of unsold shares.
An underwriter is the investment bank that runs the offering. It does the diligence, helps draft the disclosure document, builds the valuation, organises the investor marketing, gathers orders, sets the final price with the company and decides which investors get shares. In the standard US structure, a firm commitment, the bank then buys the whole block from the company at the offer price less its fee and resells it, so anything it cannot place stays on its own books. That fee, the gross spread, is often around five to seven percent on a mid-size deal and lower on very large ones.
Card 5 of 16
At the kickoff meeting a client asks how long the whole IPO will take and what happens in between. Walk her through it end to end.
A traditional IPO usually runs four to nine months from kickoff to the first day of trading.
It starts with an organisational meeting where the company, banks, lawyers and auditors agree the plan. Then comes the long stretch: diligence, audited financials and drafting the registration statement, which is filed with the regulator and goes through rounds of written comments. Once that clears, the deal launches publicly with a price range, management spends one to two weeks meeting investors, and the bank collects orders. The deal is priced the night before trading begins, and the stock opens the next morning. Market conditions and the state of the company’s accounts move that timeline more than anything else.
Card 6 of 16
What is the prospectus, or registration statement, and why does a deal team spend months on one document?
The prospectus is the company’s full public disclosure and the legal basis on which investors buy the deal.
It is the document a company files with the securities regulator, called an S-1 in the United States, before it can sell shares to the public. Inside are the business description, audited financial statements, management’s discussion of the results, a long list of risk factors, how the proceeds will be used, and who owns what. Investors are legally entitled to rely on it, and the company and the banks can be sued if it is materially wrong or incomplete. That liability is exactly why diligence is exhaustive and why sentences get argued over line by line.
Card 7 of 16
You’re a week into the roadshow for Calder Foods when the syndicate desk says the book is three times covered. What is a roadshow, what does building a book mean, and what did they just tell you?
A roadshow builds a book of investor orders at each price, showing what demand the deal can really bear.
The roadshow is one to two weeks of management meeting institutional investors, funds, pensions, insurers, to tell the story and answer hard questions. As those meetings happen, the bank’s syndicate desk builds the book: a running record of who wants how many shares and up to what price. Three times covered means orders total roughly three times the shares on offer, which sounds emphatic but is only a starting point. Orders are non-binding and often padded to win an allocation, so bankers discount them and weigh who is asking as heavily as how much.
Card 8 of 16
How does the IPO price actually get set, and why does the price range narrow as the deal goes on?
The range starts as a valuation estimate and narrows as real orders replace guesswork.
Bankers start from valuation, comparable public companies and a discounted cash flow, then cut that by an IPO discount because investors want to be paid for backing a company with no trading history. That produces the range printed in the prospectus, which is deliberately an opening anchor rather than a forecast. As the book fills in, guesswork gets replaced with actual limits real investors will pay, so the range gets revised up or down and finally collapses to one number agreed the night before trading. The goal is not the highest possible price, it’s the highest price that still leaves committed buyers behind it.
Card 9 of 16
Calder Foods prices at $23 and closes its first day at $30. The CFO calls and asks whether the bank left $7 a share on the table. What do you say?
A first-day pop is partly deliberate underpricing and partly information the deal could not fully see.
The pop is the gap between the offer price and where the stock settles on day one. On the company’s side it is straightforward arithmetic: that gap times the primary shares sold is cash the business could have raised and didn’t. On the bank’s side, a modest discount is intentional, it compensates long-term investors for taking an untested stock, encourages them to hold, and reduces the chance of a broken deal trading below issue, which damages the shareholder base and every future raise. Only a small slice of the company trades on day one, so that opening price is also thin evidence. Reasonable people genuinely disagree here.
Card 10 of 16
What is a lock-up period in an IPO, and why do underwriters insist on one?
A lock-up stops insiders selling for a set window so early supply cannot swamp a newly listed stock.
A lock-up is a contract between insiders, founders, executives and pre-IPO shareholders, and the underwriters, agreeing not to sell shares for a period after listing, most commonly around 180 days. It exists because only a small fraction of the company is floated at IPO, so unrestricted insider selling into that thin market would overwhelm it and it would signal that the people who know the business best want out. Expiry dates get watched closely, though the effect on price is usually smaller than expected because everyone can see the date coming.
Card 11 of 16
Two weeks after Northbay Logistics prices, the syndicate desk mentions they’ve exercised the shoe. What is the greenshoe, and why does every deal have one?
The greenshoe lets underwriters sell fifteen percent extra shares and cover it from the company or the market.
The greenshoe, formally the over-allotment option, lets the underwriters buy up to fifteen percent more shares from the company at the offer price for about thirty days after pricing. Mechanically the bank sells 115 percent of the deal on day one, leaving itself short that extra slice. If the stock trades up, it exercises the option, buys the shares from the company and delivers them, and the company raises more money. If the stock trades down, it buys shares in the open market instead, which covers the short and steadies the price. One structure, two useful outcomes.
Card 12 of 16
A founder who owns 2 million of Northbay’s 8 million shares asks what the IPO does to her stake if the company issues 2 million new shares. Walk her through it.
Issuing new shares takes nothing from you, it shrinks the fraction each share you hold represents.
Before the deal she owns 2 million of 8 million shares, which is 25 percent. Issue 2 million primary shares and the count becomes 10 million, so her unchanged 2 million is now 20 percent. That is dilution: same certificates, smaller share of the votes and of every future dollar of earnings, and earnings per share spread thinner too. Whether she is worse off depends entirely on what the proceeds do, since a smaller slice of a better-funded company can be worth more than a bigger slice of the old one. Secondary shares cause no dilution at all, because they already existed.
Card 13 of 16
What is a follow-on offering, and why does a stock often dip when one is announced?
A follow-on sells more shares after the IPO, and both new supply and the signal usually push the price down.
A follow-on is any offering by an already-listed company, whether the company issues new shares to raise cash, existing holders sell down, or both. It can be marketed over days or done overnight as a block. The price almost always clears at a discount to the last close, because you’re asking the market to absorb a large slug of stock at once and buyers need an incentive. There’s a signalling effect too, since management chooses when to sell and tends to do it when the shares feel fully valued. A sponsor exiting reads differently from a company funding a defined project, and interviewers will ask you to tell them apart.
Card 14 of 16
How do a direct listing and a SPAC differ from a traditional IPO, and when would a company pick one?
A direct listing floats existing shares without raising cash, a SPAC goes public by merging into a shell.
In a direct listing, existing shares simply start trading, with no underwritten offering and, classically, no new money raised, so the opening price comes from an auction rather than a book. It suits a well-known, well-funded company whose holders mainly want liquidity. A SPAC is a listed shell that already raised cash in its own IPO and then merges with a private target, which becomes public at a negotiated price, usually faster but with sponsor shares and investor redemptions eating into the cash that actually arrives. A traditional IPO stays the default when the goal is raising real capital at a marketed price.
Card 15 of 16
Two near-identical logistics companies with the same financials price nine months apart at very different multiples. Your analyst asks how that’s possible. What’s going on?
An IPO prices off the market’s appetite in that window, not off the company’s fundamentals alone.
An IPO is priced against what investors will pay right now, and right now moves. The comparable companies you value against trade at different multiples in different quarters, so the anchor itself shifts. Calm markets let buyers accept a slim discount while volatile ones make them demand a fat one, and higher interest rates push down what any future cash flow is worth today. Recent listings matter too: a run of deals that traded up creates appetite, a run of broken ones closes the door. Add fixed constraints like earnings blackouts and the shelf life of audited accounts, and you get real windows a company can miss.
Card 16 of 16
Curveball: Calder Foods has 40 million shares and comparable companies imply $1.5 billion of equity value. It needs $300 million of primary proceeds. How many new shares is that, and where does the IPO discount come in?
New shares equal proceeds divided by the offer price, which is the comps value less an IPO discount.
Comps imply about $37.50 a share on the existing 40 million. You don’t offer there, though: an IPO discount of roughly ten to fifteen percent buys the demand, so call the offer price $32. Raising $300 million at $32 takes about 9.4 million new primary shares, lifting the count to roughly 49.4 million, and those new investors end up owning about nineteen percent of the company. Notice what the discount cost: $5.50 a share on 9.4 million shares is around $50 million of value handed to buyers to get the deal done. That trade, certainty of execution against price, is the whole conversation in the pricing meeting.
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