Types of IPOs: A Broker-Dealer’s Guide to Public Offerings

Understanding IPO Types

In today’s market, three primary IPO structures dominate the landscape. Each offers distinct advantages and risks for broker-dealers and their clients.

1. Firm Commitment Offerings

• The most common IPO type
• The underwriter purchases shares directly from the issuer
• Higher certainty of completion
• Faster execution timeline
• Preferred by large institutions

Key Risk: The underwriter bears inventory risk if shares remain unsold

2. Best Efforts Offerings

• There is no guarantee of a full subscription
• Uses escrow account for funds
• 90-day typical timeline
• Lower underwriter risk
• Higher issuer uncertainty

Challenge: Limited institutional participation due to escrow requirements

3. Regulation A Offerings

• Designed for smaller companies
• Two tiers:
  • Tier 1: Up to $20M annually
  • Tier 2: Up to $50M annually
• Simplified disclosure requirements
• Available in all 50 states (Tier 2)

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