Going public might sound like a glamorous, red-carpet event for a startup. After all, an IPO, or initial public offering, represents the first time a company is offering its shares on the public stock exchange. And it certainly has its perks: access to capital, increased visibility, and new growth opportunities.
But a startup making its IPO is like stepping onto Wall Street’s stage — spotlights, scrutiny, and all. The process is complex, bringing challenges and responsibilities.
Below, we’ll go behind the scenes of what happens when a startup goes IPO and how it affects employees and early investors.
If you’re a startup employee, there might come a time when rumors about “going public” begin to circulate. While it’s best to hold off on taking any action until management confirms there will be an exit event, it’s never a bad idea to familiarize yourself with the IPO process and what it could mean for you.
Educate yourself on the type of equity you hold in your company, and pay attention to any potential tax repercussions. Restricted stock units (RSUs), for instance, might mean you have to pay taxes on the IPO date. It’s worth understanding how equity behaves in late-stage private companies, especially if you’re weighing your options around exercising or holding through an IPO.
Employees should also check whether the company offers pre-IPO liquidity options, such as secondary transactions. Secondary markets are increasingly being used to help employees unlock liquidity before an IPO, without waiting for the public market. Platforms like the one operated by Augment Capital* can help you make those transactions.
Think of Augment like the Bloomberg terminal but for pre-IPO trading: The platform securely connects sellers with buyers, displays price information, and executes trades from start to finish. Learn how Augment’s Marketplace helps private shareholders access liquidity.
Before the company goes IPO, it’s important to take stock of your own priorities. While an IPO could offer a significant financial upside, it could also create a more intense, high-pressure environment. The transition to a public company brings with it additional reporting requirements and more formal processes, sometimes resulting in a culture shift at work.
Your startup leaders are comfortable with the company’s growth and are beginning to advertise their interest in going public. But what happens next?
The startup begins by advertising to underwriters, who are typically investment banks that will be tasked with raising capital and attracting investors.
The underwriter acts as a guide throughout the rest of the IPO process and will be involved at every step. The underwriter will help the startup conduct due diligence, structure the deal, and set the offering price.
Any startup beginning the IPO process must go through an extensive due diligence period. Underwriters will work with attorneys to dig deep into company data, including financials, management, organizational structure, and business plans. The goal is to ensure compliance with regulations imposed by the U.S. Securities and Exchange Commission (SEC), which governs public companies.
The underwriter helps prepare the S-1 Registration Statement, or prospectus, for the SEC. This is a critical step in the pre-IPO process, signaling a company's readiness to enter the public markets—though it doesn’t always guarantee a public launch. The S-1 form must be filed by all U.S.-based companies before they can begin listing shares on a stock exchange. This is an important document for potential investors, as it discloses detailed financial information and any business risks.
Now it’s time to put a price tag on the IPO. Startup executives will travel with the underwriters to market the company to potential investors, generating interest and gauging demand. Feedback from this roadshow, along with market conditions, helps set the final price and number of shares to offer.
Once the SEC gives its stamp of regulatory approval, the IPO is ready to launch. Shares are issued, trading begins on a public stock exchange, and the startup receives its capital.
Law firm WilmerHale recently found that about half of IPO companies were profitable in 2024. Some IPOs will underperform after launching. A startup’s valuation might be off the mark, for instance, with the stock priced too high once it officially hits the market. Some companies can recover from a poor IPO start, while others could struggle to regain momentum.
And even for successful startups, increased scrutiny and strict regulatory requirements will come alongside the influx of cash. Public companies face ongoing audits and must submit regular financial disclosures and quarterly reporting to the SEC. Transparent communication with investors is key.
An IPO is a major milestone for a startup, but it’s also the beginning of a new chapter filled with opportunities and challenges. Going public can unlock growth, but success depends on preparation, adaptability, and a clear vision for the future.
*Securities transactions are executed on Augment Capital, LLC's ATS and offered through Augment Capital, LLC (member FINRA/SIPC).
Important Disclosures: Investing in private securities involves substantial risk, including the potential loss of principal. Private securities are typically illiquid, have limited pricing transparency, and often require longer holding periods. These investments are available exclusively to qualified accredited investors and offer no guarantee of returns. Additionally, past performance of private securities does not indicate or predict future results. Augment Capital does not guarantee transaction success.