IPO volume

When a company goes public, it sells shares of itself to the public for the first time. Anyone who buys such a share then owns a tiny piece of the company. In industry jargon, this initial sale is called an IPO, short for “Initial Public Offering.” The IPO volume is simply the total amount raised in the process: the number of shares sold multiplied by the price per share. If a company sells 20 million shares at 25 euros each, the volume is 500 million euros. However, the term is also read differently: as the total sum of all IPOs in a given year or country.

What the figure reveals about market sentiment

For the company itself, the volume answers a very practical question: how much fresh money is now available? This money is used to build factories, pay off debt, or acquire competitors. A volume that is too small may mean the plans cannot be adequately funded. A very large volume brings in money, but it spreads the company across many new owners.

Even more often, this metric appears in financial news as a sentiment barometer. When investors are optimistic, many companies dare to go public, and volumes rise. In times of uncertainty, such as during crises or when interest rates are high, companies postpone their plans. 2021 was a record year worldwide, with over 400 billion dollars raised through IPOs. In 2022, that total collapsed by about two-thirds. Such swings often say more about investor nervousness than about the companies themselves.

How the total is composed

Before going public, investment banks accompany the company through the process. They estimate what the company might be worth and set a price range, for example 22 to 28 euros per share. They then ask major investors such as funds and insurance companies how many shares they would take and at what price. This process of gathering purchase interest is called bookbuilding. If demand is high, the price ends up at the upper end of the range, and the volume grows.

An important distinction is often overlooked. There are new shares that the company issues in addition; this money flows into the company’s coffers. And there are existing shares that current owners sell; this money goes to them personally. Both count toward the IPO volume, but only the first part actually finances the company. Anyone reading a headline closely should therefore check which portion actually ends up with the company.

Often an additional reserve is included, the so-called over-allotment option. If trading goes well in the first few days, the banks are allowed to issue additional shares. The final volume then ends up somewhat above the originally reported figure.

IPO volume in headlines and in the tech industry

In the news, you will almost always encounter this figure in the phrasing that a company has “raised X billion.” You shouldn’t confuse it with market capitalization, also known as market value. Market capitalization is the price of all shares combined, while the volume refers only to the shares that were sold. A company can be worth 60 billion and still only raise 5 billion, because it is only giving up a small portion of itself.

The term appears especially often in reports about technology and AI companies. Chipmakers, cloud providers, and software companies need a lot of capital before they turn a profit. For them, an IPO is a way to obtain this capital all at once. Chip designer Arm raised around 4.9 billion dollars in 2023, delivering the largest IPO of the year.

As a reader, it’s worth taking a sober look at this figure. A high volume does not mean that the company is well managed or that the stock will rise. It merely shows that investors were willing to pay this price at the time of the sale. Many stocks with a huge IPO volume were trading significantly below their offering price a year later.