An initial public offering, or IPO, refers to the first public sale of stock by a company. IPOs are typically presented by small-to-medium enterprises that are seeking capital or by larger companies that wish to be traded publicly for various reasons.
Before an IPO is issued, the issuing company must obtain the aid of an underwriting firm. The selected underwriter determines whether the security will be issued as a preferred or common stock, and follows up by deciding on the issue price and the date of issuance.
IPOs are often considered risky as it is can be difficult to forecast how a stock might perform during its first day on the exchange. However, while IPOs can be uncertain investments due to their lack of any historical information supporting their future performance, they can also hold the promise of a large return.
A pre-IPO, as the name suggests, is an offering presented privately before the actual IPO is introduced into the marketplace. Private investors generally include big equity firms or hedge fund companies. Share prices for pre-IPOs are also usually less than IPO shares issued on the exchange.