IPO
Premier appel public à l'épargne (PAPE) in French
Quick definition
An IPO, or initial public offering, is the first time a company sells its shares to the general public and lists on a stock exchange. Private owners gain a tradeable stock and an exit; the company gains capital and a lifetime of public scrutiny.
Why companies go public
An IPO raises a large pool of capital in one stroke, but that is only part of the motivation. Going public gives early backers, including founders, employees, venture capital funds and private equity owners, a way to eventually turn paper stakes into money. It creates publicly traded shares the company can use as currency for acquisitions and employee pay. And a stock exchange listing brings a level of profile and perceived legitimacy that private companies rarely enjoy.
The price of admission is permanent exposure. A public company must publish detailed financial reports every quarter, disclose bad news promptly, and live with analysts, journalists and shareholders second-guessing management in real time. The share price becomes a public scoreboard that updates every trading day, which changes how companies behave, not always for the better.
How the process works
The company hires investment banks, called underwriters, to manage the sale. Together they prepare a prospectus, the legal document describing the business, its finances and its risks in exhaustive detail. Then comes the roadshow: weeks of presentations to large institutional investors to gauge demand. Based on that demand, the underwriters and the company settle on an offering price, which fixes the company's initial market capitalization, and shares are allocated to investors the night before trading begins.
The retail reality
Here is the part the headlines skip. Shares at the offering price are allocated mostly to institutions and favoured clients of the underwriters. When an IPO is hot, ordinary investors rarely get a meaningful allocation; what they get is the chance to buy on the first day of trading, at whatever price the opening pop has already produced.
That distinction matters because the famous first-day jumps belong to the investors who received allocations, not to the people buying from them. And while spectacular debuts make the news, the longer-run record is sobering: as a group, newly listed companies have historically tended to lag the broader market in the years after listing. Averages hide winners, of course, but the burden of proof sits with the excited buyer.
The practical takeaway is patience. Waiting six months costs little: by then the company has filed real quarterly reports, the promotional fog has cleared, and the stock has found a market-set price. One more date worth knowing: insiders are typically barred from selling for several months after the IPO, and when that lock-up expires, a wave of newly sellable shares can pressure the price.
In Canada
Canadian companies going public typically list on the Toronto Stock Exchange, with earlier-stage companies starting on the venture exchange. Larger Canadian firms often cross-list in the United States as well, chasing deeper pools of capital and higher trading volume. A traditional IPO is also no longer the only door: direct listings and SPAC mergers offer alternative routes to public markets, each with trade-offs of its own.
Worked example
A software company prices its IPO at $20 per share. Institutions receive nearly all the allocation. Trading opens at $28 amid heavy demand, and Sam, an excited retail investor, buys at that price on day one. The 40% first-day pop the headlines celebrate went to the allocated institutions, not to him. Over the following months, two routine earnings reports and the lock-up expiry bring the shares back to $23. Sam is down on a stock the news called a triumph, while his friend who waited can now judge the same company on real public filings at a calmer price.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026