By issuing either equity or debt a company can earn money. If the company does not issue equity to public then it will be called an IPO. If a company wishes to go public then it has to hire an investment bank, a financial intermediary which does several services including underwriting, facilitating the mergers, acting as an intercessor between the investing public and a security issuer.
In an Initial Public Offer, the issuer gets the help of an underwriting, methods of issuing the insurance policies, firm regarding the determination of security to issues. That firm also assists the issuer to determine the best prices of the issues that can be offered and the time of bringing it into the market.
There are certain amount of risks involved in the IPOs. It is really tough for an individual investor to guess the performance of the stock on its first day of trading as well as in the coming days due to lack of historical data regarding that stock. Therefore, the investor will also not be able to analyze the IPO company.
In addition to that, mainly those companies issue IPO that are developing. So, some uncertainties regarding their future performances are definitely there. Therefore, obtaining a hot IPO is pretty difficult.
A company has to put the formal documents together for the Securities and Exchange Commission to issue an IPO. It also has to sell the issue to institutional customers. The public can get their shares in Initial Public Offer by having an account, which is traded every now and then, with one of the many investment banks.