What are IPOs and how do stock offerings work?

In recent years, more and more people have heard about companies going public and starting to trade shares.

This movement is called IPO, an acronym in English for Initial Public Offering, or Initial Public Offering. But what are IPOs in fact?

Far beyond a simple process of "selling shares to the public," an IPO represents a strategic shift for companies and investors, capable of transforming local businesses into global players and generating high-impact opportunities in the financial market.

It's worth noting that this phenomenon isn't limited to multinational giants. Startups and family businesses can also pursue IPOs as a natural growth opportunity.

Therefore, understanding the dynamics of an IPO helps both small investors and large fund managers make safer decisions.

In this article, we will explain in depth how an IPO works, its benefits, risks, and effects for both companies and investors.

The content was structured to be scannable, but also in-depth, providing insights that go beyond the surface.

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Summary

1. What are IPOs: concept and purpose
2. How the IPO process works
   • Roadshow and pricing
   • Bookbuilding and demand definition
   • Stock market debut and first negotiations
3. Advantages and disadvantages of an IPO
4. Practical examples and success stories
5. Why some companies give up on going public
6. Table: comparison between IPOs of Brazilian and international companies
7. Conclusion: IPOs as a gateway for investors and companies
8. Frequently asked questions

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What are IPOs: concept and purpose

When we talk about what are IPOs, it is important to understand that it is not just about raising money.

An IPO is the first time a company offers its shares to the general public, turning ordinary investors into partners in the company.

The main objective is to raise funds to finance growth, reduce debt or invest in innovation.

However, the IPO also increases brand visibility and improves corporate governance, as the company is now monitored by regulatory bodies and the market itself.

Another little-discussed point is the psychological effect that the IPO has within the company itself.

Employees feel more pride in working for a publicly listed company, which can increase engagement and attract new talent.

This human capital is added to financial capital, creating a virtuous cycle of growth.

A 2024 PwC study shows that publicly traded companies grow, on average, 30% faster in the five years following their IPO than privately held companies, precisely because of their greater ability to raise capital and attract talent.

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How the IPO process works

Going public doesn't happen overnight. It's a long process, which can take months and requires financial, legal, and marketing strategies.

Roadshow and pricing

The first step is the so-called roadshow, when company executives and investment banks present the company to potential institutional investors.

This is when managers “sell the company’s story”: business model, expected growth, risks, and projections.

Pricing is a delicate matter. If the initial share price is too high, it can lead to low demand and a disappointing debut.

If it's too low, the company could leave money on the table. A prime example was Facebook's IPO in 2012, when the initial valuation was lower than expected, sparking criticism about the valuation.

Furthermore, experts point out that the roadshow is almost as important as the company's financial health.

Investors evaluate not only numbers but also the confidence conveyed by management. Transparent and strategic communication can directly influence demand for shares.

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Bookbuilding and demand definition

The mechanism called bookbuilding gathers investors' purchasing intentions and helps determine the final share price. This process ensures that the price is aligned with market demand.

For example, in Raízen's 2021 IPO, bookbuilding showed demand almost three times higher than the initial offering, which allowed the company to raise approximately R$6.9 billion.

This mechanism also serves as a kind of market "thermometer." If demand is low, the IPO may be postponed or repriced.

This shows how bookbuilding protects both the company and investors from rash decisions.

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Stock market debut and first negotiations

On IPO day, shares begin trading on the stock exchange. This moment can be marked by euphoria or caution, depending on investor appetite.

In some cases, the stock soars upon its debut, as happened with XP Inc. in 2019, which rose by more than 20% on its first day of trading on the Nasdaq.

On the other hand, negative debuts also exist. Uber's 2019 IPO fell 7.61% in its first trading session, demonstrating that initial excitement doesn't always translate into appreciation.

This type of behavior reinforces the importance of evaluating fundamentals and not just the hype of the moment.

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Advantages and disadvantages of an IPO

Going public brings benefits, but it also requires sacrifices.

Advantages:

• Raising large volumes of resources.
• Increased liquidity and brand value.
• Attracting talent, as shares can be used as an incentive for employees.

Disadvantages:

• High costs for audits, consultancies and regulatory fees.
• Public exposure, demanding greater transparency and governance.
• Volatility risk, as shares may fall even if the company is doing well.

Data from B3 shows that the costs of carrying out an IPO in Brazil can vary between R$1.5 million and R$1.5 million, depending on the size of the company.

Another negative point is the loss of autonomy. Publicly traded companies must report to thousands of shareholders and meet market expectations on a quarterly basis.

This pressure can reduce the strategic freedom of managers, who start to think about short-term results.

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Practical examples and success stories

Several IPOs have made history. In Brazil, Petrobras, in 2000, was one of the largest ever held in the country.

Already the one of XP Inc., in 2019, consolidated the strength of Brazilian fintechs on the international scene.

Abroad, the IPO of Alibaba, in 2014, raised US$1.4 billion, and is still considered the largest in history.

This move not only strengthened the company's e-commerce presence but also opened doors for its global expansion.

It is interesting to note that successful IPOs are often accompanied by solid long-term planning.

The stock's post-debut appreciation is not just a result of the market, but also of a compelling narrative and consistent results.

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Why some companies give up on going public

Despite all the benefits, many companies choose to forgo an IPO. This may be due to economic instability, lack of demand, or internal strategies.

In 2022, several Brazilian companies postponed their IPOs due to the rise in Selic rate and risk aversion on the part of investors.

The uncertain environment made going public unattractive at that time.

Furthermore, there are companies that simply realize they can raise funds through cheaper alternatives, such as issuing debentures or private investment rounds.

This shows that the IPO, although powerful, is not the only tool available.

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Table: comparison between IPOs of Brazilian and international companies

Enterprise	IPO Year	Amount Raised	Offer Location	Observations
Raízen (Brazil)	2021	R$ 6.9 billion	B3	Strong demand, focus on energy
XP Inc. (BR)	2019	US$ 2.25 billion	Nasdaq (USA)	International expansion
Petrobras (BR)	2000	R$ 7.3 billion	B3	One of the largest in the country
Alibaba (China)	2014	US$ 25 billion	NYSE (USA)	Largest IPO in history
Facebook (USA)	2012	US$ 16 billion	Nasdaq (USA)	Debut marked by volatility

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Conclusion: IPOs as a gateway for investors and companies

Understanding what are IPOs It is essential for anyone who wants to invest or monitor the financial market strategically.

More than just a stock offering, an IPO represents the opening of new paths: for companies, it's an opportunity to raise funds and gain visibility; for investors, it's the chance to participate in the growth of innovative companies.

However, it's important to remember that not every IPO is guaranteed to be successful. Assessing fundamentals, analyzing risks, and understanding the market situation are crucial steps before investing.

After all, in the financial world, information is power.

For companies, the lesson is clear: going public can be transformative, but it only works when there is planning, transparency, and clear communication with the market.

For investors, it's a chance to follow growth stories from the beginning.

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Frequently asked questions

1. Can any investor participate in an IPO?
Yes. Both institutional investors and individuals can purchase shares in an IPO, usually through accredited brokerages.

2. Can I sell the shares on the same day they debut?
Yes, but many experts recommend analyzing initial behavior before selling, as prices can fluctuate significantly.

3. Do all companies that go public become profitable for investors?
No. There are cases of significant appreciation, but also of sharp declines immediately after the IPO. Therefore, business analysis is essential.

4. How long does it take for a company to go public?
The process can take anywhere from six months to over a year, depending on the complexity of the business and market conditions.

5. Is an IPO always the best option for raising funds?
No. Many companies opt for private investment rounds, loans, or bond issuances, which can be more advantageous depending on the economic climate.

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