IPO
Also known as Initial Public Offering, Going Public, IPO Exit
An IPO (initial public offering) is the first sale of a private company's shares to public investors on a stock exchange, executed through a registration statement filed with the relevant securities regulator. It is the highest-multiple but lowest-frequency venture exit path: it produces a small share of exits by count and a much larger share by dollar value.
In depth
An IPO converts a private company into a public one. The general mechanics are universal: file a registration statement with the relevant securities regulator, complete a review-and-amendment cycle, market the offering through a roadshow, price with the underwriters, and list on an exchange. The registration statement bundles audited financials, risk factors, management discussion, use of proceeds, and the prospectus the underwriters use to market the offering. The specific forms and regulators differ by jurisdiction — Form S-1 with the SEC in the US, an approved prospectus under the EU Prospectus Regulation, equivalents in the UK, Hong Kong, Japan, and elsewhere — but the structure of the process is broadly similar.
For VCs, the IPO is not the cash-out moment most founders imagine. Preferred shares auto-convert to common at the listing. Underwriter lockups, commonly 180 days, prevent insiders from selling. The fund's DPI does not move on listing day. It moves when shares are distributed in kind to LPs or sold into the open market once lockup releases.
The IPO path is selected when a company is too large to be acquired cleanly, when the founders want to retain control through a high-vote share class, or when the public market is paying a premium to private secondaries. It is also the only exit path that produces durable independence rather than absorption.
Why it matters
IPOs drive the right tail of fund returns. A single public listing at scale can return a venture fund multiple times over. They also reset the cap table: founders become public-company CEOs, employees can sell vested stock after lockup, and VCs face the question of when to distribute. Distribution timing is itself a return decision. Distribute too early and LPs lose the post-lockup run. Distribute too late and you ride a single position through volatility that is no longer venture risk.
The IPO market is also the gating signal for the rest of the cycle. When the window is shut, late-stage rounds reprice down, secondaries widen, and exit multiples compress across the portfolio. Closed-window periods tend to be visible in DPI before they show up in fund-level marks.
Worked example
A Series C company files a registration statement to list on a major exchange:
| Item | Value |
|---|---|
| Shares offered (primary) | 10,000,000 |
| Price to public | $20.00 |
| Gross proceeds | $200,000,000 |
| Underwriter discount (7%) | $14,000,000 |
| Net to company | $186,000,000 |
| Fully diluted shares outstanding | 100,000,000 |
| Implied market cap at offer | $2,000,000,000 |
A VC holding 12M preferred shares at a $4 average cost basis converts to 12M common at IPO. Position value at offer:
Position value = 12,000,000 × $20.00 = $240,000,000
Cost basis = 12,000,000 × $4.00 = $48,000,000
Gross MOIC on the position = 5.0x
After the 180-day lockup, the fund distributes shares in kind to LPs at the then-prevailing price. If the stock trades at $28 at lockup release, the realized MOIC on this position is 7.0x before fees and carry.
Frequently asked
What share of venture exits happen through an IPO?
Very few by count, but a large share by value. In recent years, industry data (e.g. NVCA in the US) has shown IPOs running at low single-digit percentages of VC-backed exit deals but contributing roughly a third to a half of total exit dollar value, depending on the year and market window.
What goes into the registration statement, and how long does review take?
The registration filing (Form S-1 in the US, prospectus under EU Prospectus Regulation, equivalent forms in other jurisdictions) includes audited financials, management discussion, risk factors, use of proceeds, and the prospectus used to market the offering. Regulators typically issue a first round of comments within several weeks, with multiple amendment cycles before the filing goes effective. Specifics vary by exchange and jurisdiction.
What happens to VC shares at IPO?
Preferred stock auto-converts to common at the conversion ratio set in the charter, usually 1:1 subject to anti-dilution adjustments. VCs do not sell at the offering in most deals. An underwriter lockup (commonly 180 days) blocks insider sales, after which distributions to LPs typically begin via in-kind transfers or open-market sales.
Does the IPO mechanism vary across jurisdictions?
Yes. The general mechanism — register, market, price, list — is universal, but the specific filing forms, regulator (SEC, ESMA-supervised national regulators, FCA, SFC, JPX, etc.), disclosure standards, and exchange listing rules differ. Companies choose listing venues based on investor base, accounting standards (IFRS vs. US GAAP), and post-listing liquidity.
How long does the full IPO process take from kickoff to first trade?
Six to twelve months in a normal market. The all-hands kickoff is followed by drafting (8-12 weeks), confidential or public registration submission, regulator review and amendments (typically two to four rounds), the roadshow (about two weeks), pricing, and the first day of trading.