Whenever you buy a business, you have to have some idea of the valuation.

The IPOs need to have buyers. The buyers will have some idea of the business valuation, as will the sellers. This is decided before the actual stock starts trading.

Specifically, the "underwriters" will go around finding people willing to buy what is being offered. This gives some idea of where it will begin to trade.

Investors ‘subscribe’ to an IPO. A company offers a certain amount of shares for sale at a certain price. Then the underwriting banks go out and sell the shares.

If your broker allocates you shares, you pay the IPO price as does everyone else who was allocated shares. The shares are all allocated before the IPO happens and once it opens for trading, price discovery happens.

How the price is set is another matter, one I’m not familiar with as an amateur.

It's the starting listed price. For an anchor, it determines a lot about how the first few days go. It's also a great headline. It's also also what employees picture when they evaluate their stock options, I bet.

Some people buy on "day 0", before it hits the stock exchange. This determines the price they pay on day 0. For example, if they buy 10% on day 0, they pay $130 billion.

The stock exchange is a "secondary market", which means you're buying stock from investors who own it, not from the company itself.

An IPO is effectively a funding round, and the numbers we're discussing here are the amount they'll raise from the IPO.

> can someone explain to me the point of the 'initial valuation'

Most of the institutional and retail placements happen on the initial valuation. These are the people who are holding the shares when it gets listed and starts trading, and it is the primary source of raising capital through an IPO.

To go further though the Initial Valuation (usually a range) is set weeks before the IPO to make it easier to pitch to investors. And the final valuation is locked in the night before trading based on actual demand.

The opening price on the stock exchange, though, will be whatever the demand and supply is in pre-market trading/open.

The first seller has to decide a price to ask. The price of the first share sold x number of shares is that seller's "valuation" of the company.

Typically in an IPO, the offering is about 20% of valuation of the company at the first offering. But with a $trillion or more, they will offer say 10% or less.. say $100B in one go is probably what the market can take.. Some banker has to back it up initially and defend that price... the next dump will be about same amount say $100B again but not the same number of shares. The underwriters are not obliged to back $1T and the IPOed company is not obliged to release more shares.

The point is that is the price the private investors who will be liquidating, including the company itself, are accepting for their shares.

If they are too far below the perceived value, they are leaving significant money on the table.

If they are too high, the institutions who participate in IPOs will let them know. If the price craters off IPO it is not good for perception of the stock, and so ongoing health of the company even if that maximizes private investor value at IPO.

So they build a book of commitment around the target value, trying to leave enough incentive (15-20%, often) of an initial bump to get big money in.

Why does years of work matter? Serious question.

That plus Meta's Muse Wonder LLM is very close to Opus 5.5.