Going public? Here is a how-to guide

“A FLOTATION IS like your own funeral. You usually do it only once,” deadpans the chief financial officer of a software company that recently staged a blockbuster initial public offering (IPO). Some compare a listing to a wedding, requiring much frantic preparation and ending with a big celebration and bell-ringing. Others liken it to an 18th birthday, marking the moment a young company is launched into the harsh realities of adult life.

Whichever metaphor you choose, going public combines mixed emotions, much complexity and myriad idiosyncracies. Despite that, and undeterred by recent wobbles in equity markets, startups have been listing in droves. So far this year tech firms have raised $60bn, according to Dealogic, a data provider, more than at the height of the dotcom bubble in 2000. Include all types of business and the figure is close to $250bn (see chart). One headhunting agency is said to have more than 50 searches under way for finance chiefs at startups hoping to go public soon.

The latest blockbuster flotations include those of Amplitude, a data-analytics firm which went public on September 28th and reached a market capitalisation of $5.6bn after its debut, and Warby Parker, a maker of spectacles popular among hipsters, which started trading a day later, attaining a market value of $6.1bn. Investors can’t get enough of the fresh blood. Despite a sharp drop in the first half of the year, recently listed companies are back in favour, and have handily outperformed the stockmarket as a whole since the start of 2020.

Besides being more numerous than earlier cohorts, the new generation of floaters enjoy greater choice in how to go about it. Holders of stakes in Amplitude and Warby Parker have opted to sell their shares directly to public investors without raising fresh capital, as is in an IPO. Last year a record number of companies listed via reverse mergers with special-purpose acquisition companies (SPACs). Even the classic IPO is getting a reboot.

To make sense of it all, The Economist talked to bosses and chief financial officers of companies that have recently listed or are about to, as well as venture capitalists, bankers and brokers, most of whom spoke on the condition of anonymity. The result is a rough-and-ready guide to everything that is new in what one chief executive dubs the “key moment in capitalism”.

A conventional listing goes something like this. Banks distribute newly created shares, on average 10% of a firm’s total, to public investors, and pocket 7% of the money raised as fees. Though this should incentivise them to price the shares highly, the bankers also work for the buyers, who tend to be their long-term institutional clients rather than one-off customers like the listing startup. Pleasing those regulars often means setting a lower price.

That in turn all but ensures a share-price…