Walk Me Through an IPO: Investment Banking Interview Answer

Why the IPO Question Matters in IB Interviews

"Walk me through an IPO" is one of the most frequently asked technical questions in investment banking interviews. It tests whether you understand the core capital markets advisory role that banks play and whether you can articulate a complex, multi-stage process in a clear, structured way.

Unlike a DCF walkthrough or an enterprise value bridge, the IPO question is less about math and more about demonstrating your understanding of how deals actually work. Interviewers want to see that you know the mechanics, the key players, and the timeline from start to finish.

This guide walks through every stage of the IPO process so you can deliver a polished, comprehensive answer in your next interview.

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Stage 1: Winning the Mandate

The IPO process begins long before any paperwork is filed. A company considering going public will typically invite several investment banks to pitch for the role of lead underwriter (also called the bookrunner).

What happens during the pitch:

• Banks present their credentials, sector expertise, and distribution capabilities
• Each bank proposes a preliminary valuation range using comparable companies analysis and precedent transactions
• Banks outline their proposed deal structure, timeline, and fee arrangement
• The company selects a lead left bookrunner (the bank that runs the deal) and typically 1-3 co-managers

The lead bookrunner earns the largest share of the underwriting spread (typically 5-7% of gross proceeds for deals under $500M, declining for larger offerings). Winning the mandate is intensely competitive, and senior bankers spend significant time cultivating relationships with potential IPO candidates years before they are ready to go public.

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Stage 2: Due Diligence and Organizational Preparation

Once the mandate is awarded, the bank begins a rigorous due diligence process alongside the company's legal counsel and auditors. This phase typically lasts 8-12 weeks.

Key due diligence activities:

• Financial due diligence: Reviewing historical financials, auditing revenue recognition, analyzing EBITDA trends, and stress-testing projections
• Legal due diligence: Identifying litigation risks, regulatory issues, IP concerns, and corporate governance gaps
• Business due diligence: Understanding the competitive landscape, customer concentration, TAM (total addressable market), and growth drivers
• Management assessment: Evaluating the quality and depth of the leadership team

During this phase, the company also undertakes significant organizational preparation:

• Converting from a private company structure to one suitable for public markets
• Establishing an independent board of directors with audit and compensation committees
• Implementing SOX (Sarbanes-Oxley) compliant internal controls
• Hiring a CFO, head of investor relations, and external auditors if not already in place

The bankers work closely with company management to develop the equity story -- the narrative that will be presented to investors about why this company deserves a premium valuation.

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Stage 3: S-1 Registration Statement Filing

The S-1 is the formal registration statement filed with the SEC. It is the single most important document in the IPO process and can run 200-400 pages.

Key sections of the S-1:

• Prospectus summary: Business overview, the offering details, and key financial metrics
• Risk factors: Comprehensive disclosure of everything that could go wrong (often 30-50 pages)
• Use of proceeds: How the company plans to use the IPO capital (debt paydown, R&D, acquisitions, working capital)
• Management's Discussion and Analysis (MD&A): Detailed explanation of financial results and trends
• Financial statements: Audited financials for the past 3 years and interim unaudited statements
• Description of capital stock: Share structure, diluted shares outstanding, voting rights
• Underwriting: Terms of the underwriting agreement, fees, and lock-up provisions

The S-1 is drafted collaboratively by the company's lawyers, the underwriters' lawyers, and the bankers themselves. Multiple rounds of drafting sessions (called "all-hands" or "printer" sessions) refine the document over several weeks.

After filing, the SEC reviews the S-1 and issues comment letters requesting clarifications or additional disclosure. The company responds and files amendments (S-1/A) until the SEC clears all comments. This back-and-forth can take 4-8 weeks.

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Stage 4: The Roadshow

The roadshow is the marketing phase of the IPO, where company management and the bankers present the investment case directly to institutional investors. It typically lasts 1-2 weeks.

Roadshow logistics:

• The company's CEO and CFO visit major financial centers (New York, Boston, San Francisco, London, Hong Kong)
• They conduct 6-8 one-on-one meetings per day with large institutional investors (mutual funds, pension funds, hedge funds, sovereign wealth funds)
• A group lunch presentation is usually held in each city
• A virtual roadshow component is increasingly standard, reaching investors who cannot attend in person

What investors evaluate during the roadshow:

• Quality and credibility of management
• Clarity and conviction of the growth story
• Financial metrics and trajectory (revenue growth, margins, free cash flow generation)
• Competitive positioning and moat
• How the proposed equity value compares to public comps

The bankers gauge investor interest through indications of interest (IOIs) -- non-binding orders that investors submit during the roadshow. These IOIs form the basis of the order book.

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Stage 5: Bookbuilding and Price Discovery

Bookbuilding is the process of aggregating investor demand to determine the optimal IPO price. This is where the investment bank earns its fee.

How bookbuilding works:

• The bank sets an initial filing range (e.g., $18-$21 per share) based on comparable companies analysis and feedback from early investor meetings
• During the roadshow, investors submit orders at various prices within (and sometimes outside) the range
• The bookrunner tracks total demand, quality of investors, and price sensitivity
• If demand exceeds supply (the book is "oversubscribed"), the bank may raise the range (e.g., from $18-$21 to $21-$23)
• If demand is weak, the bank may cut the range or, in extreme cases, postpone the offering

Factors the bank considers when building the book:

• Oversubscription ratio: A 10-15x oversubscribed book is ideal -- enough demand to support the stock post-IPO without leaving too much money on the table
• Investor quality: Long-only institutional investors (e.g., Fidelity, T. Rowe Price) are preferred over hedge funds who may flip the stock quickly
• Price sensitivity: Understanding at what price large investors drop out of the book
• Anchor orders: Some large investors commit early at a specific price, providing a floor for the book

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Stage 6: Pricing and Allocation

On the night before the IPO begins trading, the final price is set.

The pricing decision:

• The bookrunner recommends a price to the company based on the final order book
• The company's board approves the price and the number of shares to be sold
• The underwriting agreement is signed, legally committing the bank to purchase the shares from the company at the IPO price minus the underwriting spread

Allocation strategy:

• The bookrunner decides which investors receive shares and how many -- this is one of the most powerful and controversial aspects of the IPO process
• Long-term institutional investors typically receive the largest allocations
• Hedge funds and short-term oriented investors receive smaller allocations or are shut out entirely
• Retail investors historically receive a small portion, though recent regulatory changes and direct listing alternatives have challenged this

A key metric is the IPO pop -- the percentage the stock rises on its first day of trading. A moderate pop (10-20%) signals effective pricing. A massive pop (50%+) suggests the company left money on the table. A decline below the IPO price is the worst outcome for all parties.

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Stage 7: The Greenshoe Option (Over-Allotment)

The greenshoe (or over-allotment option) is a mechanism that gives the underwriters the right to sell up to 15% more shares than the original offering size within 30 days of the IPO.

How the greenshoe works:

• The bank initially sells 115% of the intended offering size (over-allocating by 15%)
• If the stock trades above the IPO price, the bank exercises the greenshoe, purchasing the additional 15% from the company at the IPO price and delivering them to investors. The company raises additional capital.
• If the stock trades below the IPO price, the bank buys shares in the open market to cover the over-allocation, providing price support. The greenshoe is not exercised, and the company does not issue additional shares.

This mechanism serves a dual purpose: it provides a natural price stabilization tool in the first 30 days of trading, and it allows the company to raise additional capital if demand is strong.

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Putting It All Together: The Interview Answer

When asked "Walk me through an IPO" in an interview, structure your answer in these seven steps:

1. Mandate: The company selects an investment bank to lead the offering based on a competitive pitch process.
2. Due diligence: The bank conducts thorough financial, legal, and business due diligence while helping the company prepare for public company requirements.
3. S-1 filing: The registration statement is drafted and filed with the SEC, which reviews it and issues comments until satisfied.
4. Roadshow: Management and bankers present the investment case to institutional investors over 1-2 weeks, gauging demand.
5. Bookbuilding: The bank aggregates investor orders to build a demand curve and determine the optimal price.
6. Pricing and allocation: The final price is set, shares are allocated to investors, and the underwriting agreement is signed.
7. Greenshoe: The over-allotment option provides price stabilization and the ability to increase the offering size by up to 15%.

For bonus points, mention the typical timeline (4-6 months from mandate to pricing), the lock-up period (180 days for insiders), and the role of diluted shares outstanding in calculating the company's post-IPO equity value.

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Practice This Question and More

The IPO walkthrough is just one of dozens of process-based questions that come up in investment banking interviews. Whether you are prepping for ECM, M&A, or leveraged finance roles, understanding deal processes end-to-end is essential.

Use our IB Flash question bank to drill IPO, M&A, and capital markets questions with instant feedback. Build the muscle memory you need to deliver structured, confident answers on interview day.