When a company prepares to go public, financial modeling takes on a different role. It’s not just about valuation or internal decision-making — it’s about telling a credible financial story to the market. In an IPO, the model helps underwriters assess pricing, investors evaluate potential, and management prepare their case for going public.
This article explains how IPO models are structured in investment banking, how they differ from standard valuation models, and what makes them investor-ready.
The Purpose of an IPO Model
An IPO model is built to support three primary goals:
- Estimate a valuation range for pricing the deal
- Forecast financial performance that aligns with the equity story
- Prepare clean outputs for investor materials and regulatory filings
It combines forward-looking financials with a valuation framework that helps underwriters and the company decide on offering terms.
Key Differences from Other Models
Unlike a typical DCF or M&A model, IPO models are designed to be:
- Client-facing and investor-facing — formatting and presentation are critical
- Highly traceable — regulators and investors may review assumptions
- Regulatory-aligned — they must reflect accounting policies and disclosure rules for S-1 filings
- Positioned for a narrative — forecasts must match the story management plans to tell on the roadshow
Because of this, IPO models are more curated and less experimental. They prioritize clarity, not flexibility.
Core Components of an IPO Model
The standard structure includes:
- Assumptions tab — revenue drivers, margin expectations, IPO proceeds
- Income statement projections — often quarterly in the near term, then annual
- Cash flow and balance sheet forecasts — including post-IPO capitalization
- Valuation summary — based on public comps and implied valuation metrics
- Use of proceeds — showing how IPO funds are applied (e.g., debt repayment, growth)
- Cap table and ownership bridge — pre- and post-offering shares, dilution impact
All components must align with what will appear in the S-1 prospectus.
Forecasting with Discipline
IPO forecasts are especially scrutinized. Models should:
- Be grounded in historical trends
- Reflect operational reality (not aggressive hockey sticks)
- Show a path to profitability if not already profitable
- Match management’s talking points in the roadshow and filings
The model should not include aggressive margin expansion or sudden revenue jumps without clear justification. IPO investors look for consistency, visibility, and credibility.
Valuation in an IPO Model
IPO valuation is usually relative — based on comparable public companies, not DCFs.
The model calculates:
- Implied valuation at different price points
- Revenue and EBITDA multiples
- P/E multiples (if applicable)
- Discounts vs. comps to frame how the company is priced vs. peers
This output is used by the bank syndicate to advise the company and prepare initial pricing discussions.
Use of Proceeds and Capitalization Table
IPO models must clearly show:
- Gross proceeds from the IPO
- Estimated fees and net proceeds
- How the proceeds will be used (debt paydown, working capital, growth)
The cap table should show:
- Pre-IPO ownership
- New shares issued
- Fully diluted share count
- Implied market cap and enterprise value at the offering price
This is often summarized in a “sources and uses” format or a clean cap bridge table.
Preparing for the Roadshow and S-1 Filing
The model becomes the basis for:
- Management presentations to investors
- Internal committee reviews
- Drafting the MD&A section of the S-1
- Responding to SEC comments and diligence requests
Because of this, it must be defensible, clean, and fully aligned with financial disclosures.
There should be no circularity errors, broken links, hardcoded outputs, or undocumented assumptions. The model may be reviewed by legal counsel, auditors, and regulators — not just bankers.
Coordination with Other Workstreams
IPO modeling is built in parallel with:
- Accounting diligence and audit work
- Legal drafting of the S-1
- Valuation workstreams
- Investor education material preparation
The model must reflect the final IPO structure, not a placeholder. Timing matters — assumptions must be updated as deal terms evolve.
Closing Thought
An IPO model is more than a financial tool — it’s a launchpad for a company’s debut in public markets. It must be clean, credible, and coordinated with the entire transaction. In banking, building this model means understanding not only valuation, but how the company will be judged by the market. When structured well, the IPO model supports pricing, positioning, and performance — and earns trust from investors.