An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time on a stock exchange. This transition from private to public ownership allows the company to raise capital from a broad base of investors.
During an IPO, the company works with investment banks (underwriters) to determine the offering price, prepare regulatory filings, and market the shares to potential investors. For example, when a tech startup goes public, it might offer 10 million shares at $20 each, raising $200 million.
IPOs generate significant interest because early investors can potentially profit if the stock price rises after listing. However, IPOs can be risky — the stock price may also decline. Investors should carefully evaluate the company's fundamentals before investing in an IPO.