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Here's what you need to know about IPOs but didn't know to ask

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In the next year, it looks like we can expect IPOs for cool kid companies like Spotify, Airbnb and Casper. Blue Apron went public last summer and Stitch Fix filed for IPO just this month.

But, what *even* is an IPO?

Britney Spears (Giphy)

An initial public offering (aka IPO) is when a private company like Snap or Facebook first offers its stock to the public.

There's not one specific reason why a company goes public, though many do it as a way to make more money for expansion or improvements. It's not a quick or simple process – it takes about a year and usually costs a firm millions of dollars.

Parks and Recreation (Giphy)

Here's how it works

The first step is for the company in question, say Stitch Fix, to assemble an IPO team that includes an investment bank, lawyers, accountants and Securities and Exchange Commission (SEC) experts.

That team then collects the company's financial information for a document called the S-1 Form, which registers it with the SEC. At this point they also send out a financial brief that lets the company measure how much interest there really is in the initial stock – and, it helps set the price.

Six months before the IPO, the company's financial statements are audited. Post-audit, a board of advisers reviews the results. Then, a stock exchange like the NYSE or the Nasdaq is picked and the company chooses its ticker symbol. Amazon's, for example, is "AMZN;" Twitter's is "TWTR." Stitch Fix, which will be listed on the Nasdaq under the ticker symbol "SFIX."

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About a month before the IPO, the final audited financial statements are filed with the SEC.

On the eve of the IPO day, the price is revealed. And then, the stock hits.

Dance Moms (Giphy)

But just because an IPO is released, it doesn't mean everyone can run out and get a piece of the pie right away. Typically, heavy hitters like venture capitalists and angel investors are invited to get in on the stock before the average American.

As you probably suspected, by the time you can snag a share, the price has shot up. But a newbie public company's stock tends to bounce around the first few months of trade, so know that if you do choose to invest in Spotify, Casper or FarFetch (when and if these go public). Blue Apron, for example, is laying off hundreds of workers after seeing its stock price sliced in half in the three months since going public.

Investing in IPOs is a gamble, posing significant risks to investors, but not all new stocks falter and some even smash expectations in the long run (see: Amazon or Apple). It can also give you bragging rights about having been a believer from day one.

Justin Bieber (Giphy)

See more related Circa stories:
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