hen an Investment Banking firm (IB) "underwrites" an IPO, this means: The Investment Banking firm has analyzed (and communicated to potential investors) the potential risk and the potential return (profitability) of the company. The IB firm will usually guarantee the new shares will be sold at a minimum price. The firm issuing the new shares of stock hope the IB firm sets the price close to where the market ends up valuing the new shares, thereby maximizing the funds raised in the IPO. Buyers of the IPO shares (usually the IB firm's best clients) hope the initial purchase price is below where the market values the new shares, thereby maximizing their immediate paper profit on their investment. All of the above are true