Exitsipo

IPO

Also known as Initial Public Offering, Going Public, IPO Exit

Mikael Andersson
Mikael Andersson
VC Analyst · Updated

An IPO (initial public offering) is the first sale of a private company's shares to public investors on a stock exchange, executed through an SEC-registered S-1 filing in the US. It is the highest-multiple but lowest-frequency venture exit path, accounting for roughly 3.7% of VC-backed exit deal count in 2024 but about 42% of exit value.

In depth

An IPO converts a private company into a public one. The mechanics in the US run through Form S-1, a registration statement filed with the SEC that bundles audited financials, risk factors, MD&A, use of proceeds, and the prospectus the underwriters use to market the offering. SEC staff reviews the filing in cycles, usually returning a first comment letter within 27 calendar days. The company files amendments, eventually goes effective, prices the deal with the underwriters, and lists on an exchange.

For VCs, the IPO is not the cash-out moment most founders imagine. Preferred shares auto-convert to common at the listing. Underwriter lockups, typically 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. The 2022-2024 freeze was visible in DPI before it was visible in fund-level marks.

Worked example

A Series C company files an S-1 to list on Nasdaq:

ItemValue
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 outstanding100,000,000
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. The NVCA 2025 Yearbook reports 42 VC-backed IPOs in 2024 raising $41.2B, versus 1,083 M&A exits at $54.5B. IPOs were roughly 3.7% of exit deals and 42% of exit dollar value.

What is the S-1 and how long does the SEC take to review it?

Form S-1 is the registration statement filed with the SEC before a US public offering. It includes audited financials, MD&A, risk factors, use of proceeds, and the prospectus. SEC staff typically returns a first round of comments within 27 calendar days, with several amendment cycles before effectiveness.

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. A 180-day underwriter lockup blocks insider sales, after which distributions to LPs typically begin via in-kind transfers or open-market sales.

What was the median US IPO size in 2025?

Renaissance Capital's 2025 US IPO Market Review records 202 IPOs in 2025 with a median deal size of $15M. The market reopened after a multi-year freeze, with at least one $100M+ deal every month and five or more per month from May onward.

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 S-1 submission, SEC review and amendments (typically two to four rounds), the roadshow (about two weeks), pricing, and the first day of trading. Companies pursuing JOBS Act confidential filing add flexibility on timing disclosure.

Sources & further reading