IPOs and Private Equity: A Step-by-Step Guide for Future Investment Bankers

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IPOs and private equity are crucial investment possibilities for businesses trying to raise funds. A business can first sell shares of its stock to the general public through an initial public offering (IPO). It also involves significant risk management to ensure a successful launch.

Private equity also entails obtaining capital from individual investors to buy or invest in businesses.

Both methods give investment bankers a chance to assist clients in negotiating the difficult capital-raising process, and they can result in handsome fees and enduring partnerships.

This article will outline the main distinctions between IPOs and private equity step-by-step.

What is an IPO?

An initial public offering (IPO) occurs when a private firm sells new or pre-existing securities, such as stocks or bonds, to the general public for the first time to raise money and provide early investors or workers with the chance to sell their shares.

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The company collaborates with an investment bank or underwriter to establish the first share price and make the public offering of securities possible. The company's shares are traded on a stock exchange following the IPO.

IPO Process

A firm that has never been listed before must go through the IPO (Initial Public Offering) process to sell new or existing securities to the general public.

A business must take steps to go public through an IPO process:

Selecting Underwriters

Selecting one or more investment banks to serve as underwriters is the first step in an IPO. These banks will aid the company in getting ready for the offering, overseeing the process of performing due diligence, creating the relevant paperwork, and advertising the offering to possible investors.

Due Diligence

The underwriters' next step is to conduct a thorough due diligence process to ensure the business is financially stable and employs the right risk management procedures. This involves examining the business's financial statements, contracts, legal history, and other pertinent papers.

SEC Filing

The corporation submits a registration statement to the Securities and Exchange Commission after completing the due diligence procedure (SEC). The document details the company's business, finances, and investment risks.


The underwriters assist the business in organising a roadshow to promote the offering to potential investors once the SEC approves the registration statement. It entails making the company's investment case to high-net-worth individuals and institutional investors.

Pricing and Trading

The underwriters also assist the corporation in allocating the shares to investors and determining the offering price. To maintain transparency and responsibility to investors, the corporation is subject to ongoing reporting and disclosure obligations after trading starts.

Pros and Cons of IPOs


Access to capital: IPOs allow companies to raise significant money from public markets.

Increased liquidity: Going public can provide greater liquidity for shareholders, making it easier for them to sell their shares.

Enhanced visibility and credibility: Going public can increase a company's visibility and credibility among potential customers, suppliers, and partners.


Costly process: The costs associated with an IPO can be substantial, including underwriting fees, legal fees, and other expenses.

Increased regulatory burden: Public companies are subject to greater regulation and scrutiny, which can be time-consuming and expensive.

Loss of control: Going public can result in losing control for founders and early investors, as ownership is spread out among a larger group of shareholders.

What Is Private Equity?

Private equity involves investing in businesses not listed on a stock exchange. Private equity firms raise money from individual and institutional investors to build a fund to buy, invest in, and manage private enterprises.

Private equity seeks to increase the financial and operational performance of the companies in its portfolio to maximise return on investment.

A majority interest in a firm is acquired by private equity investors, who collaborate closely with the management to put strategic reforms into place to boost growth and profitability.

Process of Private Equity

Private equity involves several stages, including


The company must first raise money from investors to establish a fund as the initial step in private equity. To raise money, you must advertise the fund to possible investors, negotiate terms, and set up administrative and legal frameworks.

Deal Sourcing

The private equity business starts looking for suitable investment opportunities after establishing funds. Deal sourcing is finding businesses that meet the company's investment criteria by engaging with investment bankers, brokers, or other intermediaries.

Due Diligence

Before investing, the private equity firm thoroughly investigates a company to evaluate its operational and financial performance. It includes reviewing contracts, financial statements, legal records, and other pertinent paperwork.

Investment and Management

If the due diligence procedure is successful, the private equity firm invests and actively runs the company.

The process can involve:

  • Working with management to implement strategic changes.
  • Appoint new executives or board members.
  • Providing guidance and support to improve the company's performance.


Private equity's final phase involves selling the investment and giving the fund's investors a profit. Companies can accomplish this by making an initial public offering (IPO), selling their company to a different investor or strategic buyer, or finding other ways to recoup their investment.

Pros and Cons of Private Equity


Access to capital: Private equity firms can lend large sums of money to businesses, frequently with less stringent regulations than the public markets.

Strategic guidance: Private equity firms can offer companies guidance and experience in expanding and succeeding strategically.

Operational improvement: Private equity firms can assist in identifying and implementing operational enhancements, including cost-cutting strategies and efficiency benefits.


Limited liquidity: Due to the illiquidity of private equity investments, shareholders typically can only sell their shares when an exit event occurs.

Higher risk: Due to higher operational and leverage risks, private equity investments are often more expensive than investments in public markets.

Limited transparency: Because private equity firms are exempt from some of the general businesses' disclosure obligations, there is less openness, and it is more challenging for investors to evaluate risk.

Key differences between IPO and Private Equity

IPOs Private Equity 
Company goes public Company remains private
Issued by the company Issued by private equity firms
Shares traded on public markets Shares are not publicly traded
One-time event Ongoing investment relationship
Raises more capital Raises less capital


IPOs, and private equity need a solid understanding of the money market and risk management for success. Imarticus Learning's Certified Investment Banking Operations Professional course covers these topics, providing aspiring investment bankers with the skills and knowledge needed to excel in this field. 

With experienced instructors and industry-relevant case studies, this investment banking course is a valuable investment for anyone looking to pursue a career in finance. Gain the necessary expertise to succeed in the world of finance, whether in IPOs, private equity, or other areas of investment banking. 

Take a step towards investing in your future by checking out Imarticus Learning today.

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