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The investment banker may buy all the shares itself, later to resell part or all of them to interested buyers. But in most cases the investment banker is charged with finding customers willing to buy the shares at the IPO price.

You may know how difficult it is for an average investor to have access to a company's stock until the IPO day. The reason is that most underwriters looks for big investors to buy the shares in large quantities. They don't want to bother with small investors buying 100 shares; they are pursuing customers with deep pockets buying 100,000 shares. These customers are mostly institutional investors (large companies, banks), mutual fund managers, and very wealthy individuals. Recently however, many brokerage firms have been able to tap the IPO market and, through the strength of the number of their interested customers, offer the shares to average investors. Check with your broker to find out which IPOs you might be able to get in on.

Companies going public are not required to hire an underwriter to do so. You might have heard of some companies offering IPOs directly to the public on the Internet. Most companies, however, go with an underwriter because underwriters can greatly facilitate the IPO process, and most are very capable of finding buyers for the shares through their networks. (A parallel to this would be the publishing business, where some writers publish their books on their own while other choose publishers to handle all the publishing, marketing, and distribution details for them.) You might have heard of many of these underwriters: Merrill Lynch, Goldman Sachs, Prudential, and J.P. Morgan, just to name a prominent few. The IPO process generally requires weeks or months of analysis and following steps. One of these steps is the registration with the SEC (Securities and Exchange Commission). By law the company must wait a certain period of time after the registration before it can offer its shares on the market. At this point a …