The IPO: Initial Public Offering - What Happens Next?

So you’ve been part of a rocketship ride, and now your company is going public (IPO). Congratulations! But what does an IPO actually mean for you as a shareholder, and what happens after the champagne toasts? This wiki walks you through the key changes and considerations.

In a nutshell: An IPO transforms a private company into a publicly traded one, allowing anyone to buy and sell its shares on a stock exchange. For existing shareholders, this typically means increased liquidity (easier to sell shares) and potentially higher visibility (more public information about the company’s performance). But it also comes with new rules and potential implications.

What Changes After an IPO?

• Liquidity: Your shares, once illiquid (hard to sell), are now tradable on a public exchange like the Nasdaq or NYSE. This offers greater flexibility if you’re looking to sell, but also exposes your investment to market volatility (price swings).
• Transparency: Public companies face stricter reporting requirements. Expect regular financial disclosures and greater scrutiny from analysts and investors. This transparency can be beneficial, but it also means more public visibility for both successes and challenges.
• Lock-up Period: It’s standard practice for company insiders (founders, employees, early investors) to have a “lock-up” period – typically 90 to 180 days after the IPO. During this time, you cannot sell your shares. This is designed to stabilize the stock price and demonstrate management’s long-term commitment. Learn More: Lock-up periods
• Valuation: Your company’s value is now subject to the whims of the public market. Positive news can drive the stock price up, while negative news can send it down. It’s important to remember that short-term fluctuations are normal and not necessarily reflective of the company’s long-term prospects. Learn More: Understanding Private Market Valuations
• Taxes: Selling shares after an IPO can have tax implications. The profit you make (if any) will be subject to capital gains tax. The amount you owe will depend on how long you held the shares and your individual tax bracket. Learn More: Capital Gains Tax

What Should You Do After an IPO?

• Review your shareholder agreement: Understand any remaining restrictions on your shares, including lock-up periods and selling procedures. Learn More: Understanding your shareholder agreement
• Consult a financial advisor: Discussing your individual financial situation and goals with a professional can help you make informed decisions about your shares.
• Develop a plan: Consider your long-term investment strategy. Do you want to hold onto your shares, hoping for continued growth, or are you looking to diversify your portfolio? There is no one-size-fits-all answer, and the best approach depends on your individual circumstances.
• Stay informed: Keep up with company news and market trends that may affect your investment.

The IPO is a milestone, not the finish line.

While reaching an IPO is a significant event, it’s essential to remember that it’s just one chapter in a company’s story. Ongoing success requires continued innovation, execution, and adaptation to the ever-changing market landscape.

So here’s what we covered:

• What changes after an IPO (liquidity, transparency, lock-up period, valuation, taxes)
• What to do after an IPO (review agreements, consult advisor, make a plan, stay informed)
• Understanding that the IPO is a major step, but not the end of the journey.