What is an IPO?
In recent months, there have been a lot of discussion around the potential IPOs of two companies – Anthropic (the creator of Claude) and OpenAI (creator of ChatGPT). These two AI companies are in a race to IPO first and present a perfect opportunity to go back to basics and understand what an IPO actually is, why companies go public and why some succeed while others take a tumble.
What is an IPO?
An IPO, or Initial Public Offering, is when a company decides to move from raising capital privately to offering shares to the general public. The companies you see on the ASX stock exchange are public offering companies. For example, BHP, Macquarie Bank, ANZ, Telstra and Woolworths are all public companies that you can buy shares of.
Why would a company move from private to public?
Prior to a public offering, companies raise funds through private investors. An IPO can create an opportunity to raise a large amount of money from many new shareholders and give the original private investors an opportunity to recoup on their initial investment. The promise of more money is not always enough to sway companies to move from private to public however, as there are disadvantages to consider as well.
Advantages to IPO
Enables the public to invest, with the potential to raise significant capital.
Allows early investors or founders to regain their initial investment.
A successful IPO can solidify a company's image and public standing.
Disadvantages to IPO
Moving from public to private is a long process requiring time, money and resources.
Loss of ownership/control by the founders.
Public companies have different rules and regulations requiring greater transparency over financial performance and activities.
Why do companies delay their IPO?
Economic conditions such as inflation or high interest rates can result in companies delaying or choosing not to move to public at all which is what we’re seeing in the market at the moment.
This is where OpenAI and Anthropic provide us with an example of how uncertain the journey can be to IPO. Both companies have raised a substantial amount of funding from private investors and although they are bringing in revenue, the cost of developing this technology is eating through potential profits. One would imagine there would be a fair amount of pressure to go public to recoup investor funds.
Anthropic and OpenAI Example:
Anthropic filed for an IPO on June 1st 2026 with OpenAI not far behind on June 8th. OpenAI did not offer a timeline as they stated:
“It may be a while because there are things we want to do
that are likely easier as a private company.”
Since then, OpenAI CEO Sam Altman has announced that they will not go public until 2027, citing the need to focus on safety regulations following several instances of rogue bots hacking systems and exhibiting deceptive behaviour. Anthropic however, has decided to push forward, despite citing the same concerns in an online essay published by their CEO, Dario Amodei.
The first company to public offering will set the scene for the following companies in the same industry. Currently these AI companies are being valued in the billions and trillions, but if Anthropic reaches IPO first and it goes badly; that will directly affect the valuation of OpenAI - hence the race to the finish line.
How a company’s IPO price is decided:
So how is a company’s IPO price decided and what makes an IPO successful? A company’s share price is determined by the company’s valuation divided by number of shares issued. For example, Anthropic is reportedly gunning for a $100 billion IPO by selling 5% of the company. If achieved, this would then value the company at $2 trillion. Hypothetically, to raise $100 billion, they would need to sell 500 million shares for $200 each.
To decide on this price there a several factors that must be taken into account, some of which are:
Consumer demand for the company’s shares, as strong demand equals a higher stock price.
How much investors have paid for other comparable publicly trading companies.
A company’s growth projections and future plans.
This is why the journey to IPO can be so tricky, as not only is it a time-consuming process, but by the time the company is ready to go public, there needs to be the right market conditions and consumer demand. Then, to be successful after IPO and have the company share price rise, depends not only on the macro environment such as competitors and economic conditions, but the internal direction and performance of the company.
Currently, Anthropic is thought to go public in November of this year on the American stock exchange, the NASDAQ. It will be very interesting to watch how these two companies perform once they go public and if private investors will be able to recoup the billions they’ve provided in funding. They provide an excellent lesson in just how unstable the journey to public offering can be.
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DISCLAIMER
This article may contain general advice which has been prepared without taking into account your objectives, financial situation or needs. Accordingly, you should consider the appropriateness of any general advice we have given you having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decisions to purchase that financial product. The views or opinions expressed are the author’s own and may not reflect the view or opinions of Ballast.
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