Walk me through the IPO process from mandate to first trade, naming each major milestone in order and the purpose of each.

The IPO process moves from selecting a syndicate, to filing with the SEC, through roadshow bookbuilding, pricing, allocation, and then the first trade.

1. Bake-off: banks pitch for the lead-left role, and the company selects its syndicate based on valuation views and distribution capability.
2. Due diligence and S-1 drafting: lawyers, auditors, and bankers work up the S-1 registration statement, which discloses the business, risk factors, and audited financials.
3. SEC review: the S-1 is filed (often confidentially first), and the SEC comments; the document is amended until it is cleared for marketing.
4. Pre-marketing / testing-the-waters: research analysts educate investors to gauge initial valuation appetite and shape the coming price range.
5. Setting the range and launching: a preliminary price range (e.g., $17–$19) is printed on the red herring, and the offering is formally launched.
6. Roadshow and bookbuilding: management presents to institutional investors over roughly two weeks while the syndicate desk collects non-binding indications of interest, building the demand curve.
7. Pricing: the night before trading, the company and bookrunners set the final offer price based on the book's depth and quality, balancing issuer proceeds against first-day performance.
8. Allocation and first trade: shares are allocated (favoring long-only accounts), and the stock opens for trading, typically at a premium that reflects the planned IPO discount.

What interviewers are actually testing

ECM questions test whether you understand how companies actually access capital, not just how to value them. Three layers:

Process fluency. Can you narrate the IPO timeline in order (mandate, S-1, SEC review, range-setting, roadshow, bookbuilding, pricing, stabilization, lock-up) without notes? Groups love asking "walk me through an IPO" precisely because it's easy to distinguish someone who read one paragraph from someone who understands each step's purpose. Always attach the why to each step: the roadshow exists to build the book; the book exists to discover the demand curve; pricing is a negotiation between issuer proceeds and aftermarket performance.

The economics. Know the numbers cold: ~7% gross spread on mid-cap IPOs (declining with size), 10–15% IPO discount, 180-day lock-up, 15% greenshoe, 30-day stabilization window. Interviewers use these as quick checks: quoting "the underwriters typically over-sell the deal by 15% and hold a 30-day option" instantly signals preparation.

Mechanics under pressure. The greenshoe is the single most-asked ECM mechanic because most candidates can name it but not explain it. Be able to trace both branches (stock up → exercise the shoe against the company; stock down → buy in the market to cover the short, stabilizing price) and to state why the short position is riskless-by-construction for the syndicate. Similarly, primary vs secondary shares: who gets the cash, who gets diluted.

Strong candidates also connect ECM to the rest of banking: an IPO is the exit alternative in every sponsor sell-side ("dual-track"), equity issuance is a financing lever in M&A (stock-funded deals, follow-ons to delever), and the IPO window opening/closing is a barometer of risk appetite you can cite in markets questions. Mentioning the current IPO market temperature (how many deals have priced recently, whether the window is open) is a strong markets-awareness signal at a superday.

Common traps

Trap 1: Confusing primary and secondary shares. Candidates say "the sponsor IPOs the company and gets the proceeds." In a primary raise the company gets the cash and existing holders are diluted; in a secondary sale, the selling shareholder gets the cash and share count doesn't change.

Say it out loud: "Primary shares are newly issued: cash goes to the company and existing holders are diluted. Secondary shares are existing shares sold by insiders: the seller gets the cash and there's no dilution. Most IPOs are a mix, and sponsors typically sell down mostly in later follow-ons, not at the IPO."

Trap 2: Treating the IPO 'pop' as pure success. A 40% first-day pop means the deal was underpriced and the issuer left money on the table; a broken deal (below offer) burns investors. Both extremes are failures of pricing.

Say it out loud: "A modest 10–15% pop is the intended IPO discount: it compensates investors for taking unseasoned risk. A huge pop means the company sold shares too cheaply; trading below offer damages the aftermarket and the bank's credibility. Good pricing threads the needle."

Trap 3: Explaining the greenshoe backwards. Many candidates think the shoe is exercised when the stock falls. It's the opposite: the shoe (buying from the company at the offer price) is exercised when the stock trades up; when it trades down, the syndicate covers its short in the market, which is the stabilization.

Say it out loud: "The banks sell 115% of the deal, so they're short 15%. If the stock rises, they exercise the greenshoe and buy the 15% from the company at the offer price. If it falls, they cover by buying in the open market below the offer price: that buying is what stabilizes the stock."

Trap 4: Forgetting the gross spread when computing proceeds. Net proceeds = shares sold × offer price × (1 − gross spread), primary portion only.

Say it out loud: "On a $400M all-primary IPO with a 7% spread, the company nets $372M. Only the primary slice of a mixed deal ever reaches the company at all."

Trap 5: Using pre-money numbers where post-money belongs (or the wrong share count). Offer-implied market cap must use post-offering fully diluted shares; ownership math must be consistent about whether the denominator includes the new primary shares.

Say it out loud: "Post-money equals pre-money plus primary proceeds. A new investor's stake is their investment over post-money, and the implied market cap at pricing uses fully diluted shares outstanding after the primary issuance."

Trap 6: Saying a direct listing is 'an IPO without banks.' Banks still advise, but there's no underwritten book, no greenshoe stabilization, and traditionally no new capital raised: those are the real differences (and risks).

Say it out loud: "A direct listing skips the underwritten offering: no new shares, no bookbuild, no greenshoe. The company saves the spread and the IPO discount but gives up price stabilization and an anchored investor base. It suits companies with strong brands that don't need capital."