What actually happens in an IPO

In a traditional initial public offering, the company and its selling shareholders offer shares through underwriting banks. Those banks canvass institutional investors, build a book of demand at different prices, and recommend a final price and allocation.

Pricing is negotiated, not discovered

Because allocation is discretionary, the price is set where the book is comfortably covered rather than where the last marginal buyer sits. A deliberate discount improves aftermarket performance and rewards the institutions the bank wants in the register — at the issuer's expense.

The mechanics worth knowing

• Greenshoe: an over-allotment option letting underwriters stabilise the price after listing.
• Free float: a small float can produce violent moves on modest volume.
• Lock-up: insiders are typically restricted from selling for a defined period; its expiry is a scheduled supply event.
• Dual-class shares: economic ownership and voting control can be deliberately separated.

Read the prospectus backwards

Risk factors and the use-of-proceeds section carry more information per line than the strategy narrative. So does the related-party disclosure, which shows who is being paid what to bring the company to market.