IPO pricing is how a company sets the price at which its shares are first sold to the public. That number is the offer price, also called the IPO price or offering price. Institutional investors and other buyers in the offering pay it, and it is set by the company and its underwriters before the stock trades on an exchange.
The company and its underwriters agree on it the day before trading begins, after months of preparation and a short stretch of collecting indications of interest from institutional investors. The IPO pricing process has no formula. It runs on negotiation and on how much demand the underwriters can see.
The offer price is also not necessarily where the stock opens or closes on its first day of trading. Once trading starts, buyers and sellers set the price, and it can land well above or below the initial offer. For the wider sequence of events around a listing, see Augment’s guide to what really happens when a startup IPOs.
Pricing happens in the last stretch of an IPO. By then the company has filed its registration statement with the SEC, and the preliminary prospectus describes a price range, which is often blank until later amendments to the registration statement are made. The roadshow and book building run side by side, and both inform the final offer price.
The roadshow is a run of meetings where management and the underwriters present the company to institutional investors. One law firm guide describes it as a marketing tour of roughly four to seven days aimed at institutions. Investors hear the pitch, push on growth, margins and risk, and tell the underwriters how interested they are. That is how the underwriters gauge demand before anyone commits to a number.
Book building is where the underwriters collect orders. The lead underwriters, called bookrunners, record each investor’s indication of interest: how many shares the investor wants and at what price. The running tally is the book. Indications of interest are not binding.
The book helps inform underwritings on where to set the offering price. Strong demand can push the range up, and weak demand can push it down or delay the deal. Figma was first marketed at $25 to $28 a share and priced at $33, according to Augment’s Pulse recap of its IPO.
Pricing comes after the SEC declares the registration statement effective. The company and the lead underwriters sign the underwriting agreement and set the price, and shares begin trading the next day.
The company wants the highest price it can get. The investors buying want room to make money on the way up. Underwriters sit in the middle, since they buy the shares from the company and resell them to institutional investors and the public. The final number reflects the book, the company’s valuation and how the market feels that week. Then trading opens, and the market sets the price from there.
Most IPOs are sold through an underwriting syndicate, a group of firms that buy shares from the issuer and resell them, according to the SEC’s investor education site. A few lead banks run the deal, advise on the price range and keep the book. Only a limited number of broker-dealers join the syndicate, and its members don’t receive equal allocations.
The company picks its underwriters. Management works with them on valuation and the price range, and the board, often through a pricing committee, approves the final price. A higher price raises more money per share sold and dilutes existing owners less. A price set too high risks a weak debut with new shareholders watching. A price set too low can leave money on the table.
Underwriters generally focus on institutional and wealthy investors, whom the SEC says they see as better able to buy large blocks, take on financial risk and hold for the long term. Their orders are the ones that build the book.
Some deals also line up anchor investors, large institutions that signal early interest in a big block of shares. In the US that interest is generally an indication, not a binding commitment.
Underwriters decide who gets shares. The lead banks allocate shares among syndicate members, who do not receive equal amounts, and each firm then allocates to its own clients, mostly institutions. Rules also limit who can buy: a firm may not sell IPO shares to an individual unless it has determined the investment is suitable, and FINRA Rule 5130 bars sales of new issues to restricted persons, such as broker-dealer personnel. Given these restrictions, retail individuals don’t usually participate directly in IPOs.
Revenue growth, margins, profitability and cash flow all go into the company’s valuation. How much weight each one gets depends on the company and on what the market is rewarding that year. A fast-growing company with losses may be valued based on a multiple of revenue. A profitable one may be valued based on earnings.
Underwriters benchmark the company against public companies with a similar business and size. When those comparables trade at high multiples, the initial offering price range can move up with them. When they fall, it moves down.
Broader conditions count too. Interest rates, volatility and how recent IPOs have traded all affect how much institutions will pay. Augment’s look at IPO delays and private market liquidity describes companies waiting out shifting rates and tariff turbulence in the first half of 2025 before they listed.
Financials are disclosed in the registration statement, and comparable companies’ multiples are public, before the roadshow starts. Demand is not. A book that is oversubscribed lets the company and its underwriters raise the initial offering price range or price at the top of it. A thin book does the opposite, and the company can cut the price, shrink the size of the offering or wait.
Shares start trading the day after pricing. Price discovery is the market working out what the stock is worth through buying and selling. Before the IPO, the underwriters and the company set the price. Now anyone with a brokerage account can bid, and the first trade can come hours after the market opens while the exchange matches orders.
Shares that existed before the IPO usually can’t be sold on day one. Lockup agreements typically bar selling for 90 to 180 days, as Augment explains in its guide to private shares after an IPO.
The offer price is what the initial buyers in the offering paid, usually large institutions and market makers. The opening trade reflects everyone else’s orders, and the two can be far apart in either direction.
Economists call the gap “IPO underpricing.” Jay Ritter’s tracking of US IPOs finds a mean first-day return, measured from the offer price to the first close, of 19.0% across 9,343 offerings from 1980 through 2025. In 2025 the mean was 29.3% across 90 IPOs. Weighted by proceeds, the 1980 to 2025 figure drops to 7.0%. The sample leaves out SPACs, REITs, ADRs and offerings priced under $5.
One explanation of the trend is that underwriters price conservatively. Augment’s Figma coverage argues that underwriters set the price from informal investor interest rather than binding orders, which favors a lower number. Figma priced at $33 and closed its first day at $115.50.
The gap does not always run up. Some IPOs price below the company’s last private valuation, and some trade below their offer price.
A private company valuation is an estimate of what a company is worth at a given moment, often shaped more by traction, market size and investor belief than by assets. A company’s initial offering price is often informed by its valuation, and the offering is the first time public-market investors test it.
Before an IPO, shares of some private companies may change hands in the secondary market, where existing holders sell to new buyers. In a private marketplace, those trades produce prices set by buyers and sellers instead of by a funding round.
Augment’s Figma coverage points to Rubrik, whose pre-IPO secondary range of $30 to $34 sat close to its IPO price. Figma restricted pre-IPO secondary trading, and the analysis argues that left underwriters without a price signal. A secondary price is an input to the IPO price. It does not predict it.
The headline valuation of a startup is usually the post-money figure from its last priced round. Augment’s glossary defines post-money valuation as the value of a company after a financing round closes, and pre-money valuation as its value right before it receives new investment. Both describe a deal between a company and a small group of private investors.
The IPO price comes from a different analysis. Private funding rounds are typically priced on preferred stock, which can carry rights that common stock lacks, and preferred shares generally convert to common at listing. The buyers change too, from venture investors to public-market institutions that compare the company with listed peers. Time matters as well. A round that closed a year ago reflects the market of a year ago.
The IPO price reflects what underwriters and institutional buyers agreed on for one day.
Augment explains how IPO pricing works and reports what happened in past offerings. It does not predict where a company will price, how its shares will trade or whether an offering will happen. Those outcomes depend on demand, valuation and market conditions that are only known when the book closes and the registration statement is effective. Nothing here is investment advice or a recommendation to buy or sell a security.
Augment provides a private company investment platform, and its quarterly Power 20 report covers pre-IPO companies. Shareholders of companies that have announced their IPO can start learning about the process with the guide to preparing for an IPO as an investor, which covers what you own, when you can sell and what you may owe in taxes.
IPO pricing weighs investor demand against the company’s financials and the state of the market, and none of the three sets the number alone. The roadshow and book building turn that into an initial offer price, because the orders in the book indicate investor interest.
A private valuation and an IPO price come from different buyers, different securities, different dates, and different regulatory obligations, so they can differ. Once the stock lists, the first trade can differ from the offer price as well.
It is how a company and its underwriters set the offer price for the first sale of shares to the public. The roadshow gauges investor interest, book building collects the orders, and the final price is set the day before trading begins.
The company and its lead underwriters agree on it, and the board or a pricing committee approves the final number. Institutional investors shape it indirectly through the orders they place in the book.
Book building is how underwriters collect investor orders, called indications of interest, to gauge demand and set a price range. The running tally is the book. Strong or weak demand in it can move the range and the final price.
The offer price comes from a negotiation among the company, the underwriters and institutions. The first trade comes from the open market, which includes buyers who weren’t in the initial offering. Across US IPOs from 1980 through 2025 the mean first-day return was 19.0%, and individual offerings land well above or below their offer price.
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