Before an IPO’s proceeds ever reach the issuing company, investment banks take their underwriting fee directly off the top — historically clustering tightly around 7% for most traditional U.S. IPOs.
How it works
Multiplying shares offered by the offer price gives gross proceeds; applying the underwriting spread rate to that figure gives the fee, and subtracting it from gross proceeds gives the net proceeds the issuer actually receives.
What this does not include
This does not include other IPO costs beyond the underwriting spread itself — legal, accounting, printing, and exchange listing fees are all separate costs an issuer bears on top of the underwriting spread.
How to use this calculator
- Enter shares offered, offer price, and the underwriting spread rate.
A worked example
10,000,000 shares offered at $20 per share, 7% spread rate: gross proceeds = $200,000,000, underwriting spread = $14,000,000, net proceeds to the company = $186,000,000.
What the variables mean
| Variable | Meaning |
|---|---|
| Shares offered | Total number of shares sold in the IPO |
| Offer price | Price per share to public investors |
| Spread rate | Percentage the underwriters keep as compensation |
Edge cases worth knowing
The underwriting spread is the underwriters’ primary compensation for buying and reselling the shares — a 7% spread is a commonly cited industry figure for traditional IPOs, though it varies by deal size and structure.
A negative share count has no meaning, so the calculator declines to show a result for that input.
Frequently asked questions
Why did the “7% solution” become such a well-known pattern?
Academic studies documented that a strikingly large share of moderate-sized U.S. IPOs priced their underwriting spread at almost exactly 7%, prompting research into whether this reflected genuine competition or a form of tacit industry coordination.
Do larger IPOs typically get a lower spread rate?
Often yes — very large deals can negotiate spreads meaningfully below 7%, since the underwriters’ absolute dollar fee is still substantial even at a lower percentage.
Who actually receives the underwriting spread?
It’s split among the underwriting syndicate — the lead bookrunner and any additional co-managers — according to their negotiated share of the deal.
