Initial Public Offering (IPO)
When a private company first sells shares to the public on a stock exchange.
Definition
An IPO is the process by which a private company becomes publicly traded on a stock exchange. The company files an S-1 registration with the SEC, sets an offering price, and sells shares to institutional investors. After the IPO, anyone can buy and sell shares on the open market. For employees, the IPO is the most common path to full liquidity on their equity, though shares are typically subject to a lock-up period.
Why it matters
An IPO is the clearest path to turning your equity into cash. After the lock-up period (usually 6 months), you can sell your shares on the open market. IPOs also typically trigger the second trigger in double-trigger RSU acceleration.
Example
A company IPOs at $25/share with a $5B market cap. An employee with 50,000 shares at a $3 strike exercises and holds through the lock-up. Six months later, shares are at $35, and they sell for a $1.6M gain before taxes.