Are new shares created in an Initial Public Offer (IPO)?
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No.
The company sells a percentage of the authorized stock. Existing shareholders may also sell.
Technically speaking, current shareholders are diluted, but since they primarily consist of VCs and officers, they usually get a sweet deal.
You have to read the prospectus in each case but typically insiders can get options, initial shareholders may be holding preferred stock that converts to common with a nice dividend from the proceeds, there may be warrants, etc. to compensate for the dilution.
The previous response is completely wrong.
Most companies that go IPO sell newly created shares (called a Primary Offering). The new shares make up between 10% to 40% of the number of new shares in the firm. During hot IPO markets, the percent goes down — and in slow markets it is generally higher.
At most firms, insiders agree not to sell any shares to the public for six months following the IPO. This helps to stabalize the share price.
Sometimes, insiders will sell some of their shares concurrently with the IPO. Technically, this is called a Secondary Offering. It is not unusual for this to happen — but much less likely than having the company issue all of the shares. This is due to the fact that most IPOs are underpriced. Insiders who wait will benefit from the price jump.
A small number of firms also have a private offering concurrent with the public offering. They might sell shares at the IPO price to a strategic partner, for example. This is less common.
Most companies offer stock options and stock to employees at IPO. This is not considered part of the primary offering.
If part of the firm is owned by Venture Capital firms, then there is something additional to consider. They usually own Preferred Convertible stock. At IPO, their preferred stock automatically turns into common stock.
All of the information is contained in the prospectus.