Going Public: How a Private Company Becomes a Stock You Can Buy

I'm Andy Temte and welcome to Money Lessons! Join me every Saturday morning for bite-sized lessons that are designed to improve financial literacy around the world. Today is May 23, 2026.

You've heard the phrase "going public." Today, I want to walk you through what actually happens when a company crosses that line — how a private business becomes a publicly traded stock that you and I can buy.

From private to public: what an IPO is

An IPO — an Initial Public Offering — is the process by which a company sells shares of itself to outside investors for the first time and becomes publicly traded.

Before the IPO, a company is private. Its shares are held by founders, employees, and a small set of early investors — venture capital firms, angel investors, sometimes family. Those shares don't trade on an exchange. If an early investor wants to sell, they have to find a buyer privately, and there often isn't one.

After the IPO, the company is public. Its shares trade freely on an exchange — the New York Stock Exchange or Nasdaq for U.S. listings — and anyone with a brokerage account can buy them.

An IPO occurs in what we call the primary market — the place where a company itself sells shares and raises money. Everything that happens afterward, every trade you or I make, occurs in the secondary market.

Why a company decides to go public

Companies don't go public on a whim. Going public is expensive, time-consuming, and brings a level of public scrutiny that many founders dread. So why do it?

Five reasons drive most decisions.

First, capital. A successful IPO can raise hundreds of millions or even billions of dollars without taking on debt. That money funds growth — new products, new markets, acquisitions.

Second, the people who got the company this far need a way to convert their ownership into cash. Founders, early employees, and venture investors have often been holding shares for many years. Those shares are valuable on paper, but until the company is public, there's no easy way to sell them. The IPO opens that door.

Third, public stock can be used as payment when buying other companies. A private company has to come up with cash to make an acquisition. A public company can offer its own shares to the seller — a much more flexible tool when you're trying to grow by buying other companies.

Fourth, public shares make employee stock-based pay meaningful. When a company is private, granting an employee stock options or restricted shares is a promise of future value. Once the company is public, those grants have a real, observable price and can be sold — which is what makes them feel like compensation rather than a lottery ticket.

Fifth, visibility. Being public brings analyst coverage and customer credibility.

The trade-off is that public companies live under SEC disclosure rules and quarterly scrutiny. We'll spend next week's episode on what that life looks like.

The underwriting process

When a company decides to go public, the first call is to investment banks.

The banks the company hires are called underwriters. Their job is to manage the offering — to value the company, structure the deal, find buyers, and stand behind the shares being sold. The lead banks form a syndicate — a group of banks that share the work and the risk. That word should sound familiar. We talked about syndicated risk-sharing back on September 27 of last year, in the Lloyd's of London episode. The pattern is the same — a group of institutions pooling exposure to something one institution alone couldn't absorb. Lloyd's invented it for marine insurance. Investment banks adapted it for securities.

Once the syndicate is formed, the underwriters perform due diligence — a deep examination of the company's financials, operations, legal exposures, and management. They're checking whether the company is what it claims to be.

Then the company files an S-1 with the Securities and Exchange Commission. The S-1 is the formal registration document — it's also the prospectus that potential investors will read. It runs hundreds of pages and discloses everything from financial history, to risk factors, to executive compensation.

The road show and pricing

Once the SEC signs off on the S-1, the company goes on its road show.

The CEO and CFO meet with large institutional investors — pension funds, mutual funds, hedge funds, sovereign wealth funds. They tell the company's story, take questions, and try to generate interest.

While that's happening, the underwriters are building the book — collecting indications of interest from those institutional investors at various price points. How many shares would you buy at $40? At $50? At $60?

The night before trading opens, the underwriters and the company use that book to set the offering price — the price at which the IPO shares will be sold. The institutional investors who participated in the road show buy their shares from the company at that single price, in large blocks, before the public market ever opens.

Here's the point most listeners get wrong: that offering price is not the price you and I will pay when the stock starts trading.

The first day of trading

The morning after the offering, regular public trading in the new stock begins on a public exchange. And the first price at which it changes hands is often dramatically different from the offering price the institutions paid the night before.

Take Airbnb. On December 9, 2020, the offering price was set at $68 per share. Institutional buyers in the IPO bought their shares at $68. The next morning, December 10, when public trading opened, the first trade was at $146 — more than double the offering price. The stock closed that day at $144.71.

That gap between offering and opening is called the pop. It happens because the offering price reflects what institutions agreed to pay; the opening price reflects what the broader market is willing to pay once shares are tradable. When demand outstrips the limited supply of available shares, the price jumps.

Two weeks ago, we talked about the three risks of owning stock — firm-specific risk, market risk, and behavioral risk. Behavioral risk is shaped by a long list of cognitive biases that affect how we make decisions under uncertainty. The bias most relevant to a hot IPO is the urge to follow the crowd — to buy something because everyone else seems to be buying it, at exactly the moment that excitement is at its peak.

That risk is most acute in the weeks and months after a hot IPO. Returning to Airbnb: by mid-May 2021, five months after the offering, the stock was trading around $132 — below where it closed on day one. The pattern isn't unique to Airbnb. Hot IPOs frequently see post-launch exuberance fade as the market digests the company without launch-day excitement, and as ordinary quarterly results replace the IPO narrative.

What this means for you

Going public is a transformation, not just a transaction. A company changes from privately held to publicly traded, and the founders, early employees, and venture investors who built it move from owning shares they couldn't easily sell to owning shares they can.

For everyday investors, the practical takeaway is this: by the time a stock is available for us to buy, the offering price is already history. We're buying on the secondary market, often at a markup to what the institutions paid the night before. And the day-one excitement isn't the long-run story. We'll come back to the long-run story in a few weeks.

Next week, we'll talk about what changes once a company is public — quarterly reporting, earnings calls, and how the job of management transforms when the whole world is watching.

Until next week... Grace. Dignity. Compassion.