I'm looking into the causality between certain events around IPO pricing. Before an IPO is floated there's a roadshow for new investors, an initial pricing range, a pricing and the decision how many shares will be offered.

What I'm wondering is whether the selling pre-IPO shareholders (principal shareholders in S/1 prospectus) are aware of the final pricing of the IPO before they decide to sell (part of) their shares?

Yes, the current owners will know at what price they will sell some/all of their equity to the public. IPO's often get pulled, generally for lack of demand - but the current owners could decide to shelve it if for example if it appears they could only sell say 75% of the shares they want at the bottom end of the pricing range.

So yes, they are aware and aren't technically forced to sell at any price.

To take it one step further, it isn't just the bank syndicate (well, moreso the bookrunner(s)) that price the offering. The owners obviously have much say as well. In fact sometimes owners will prefer to leave a bit of cash on the table now in hopes of recouping it later. Let's say the initial range is $15-$17 - hugely oversubscribed after some marketing so they raise the range to $17-$20. Still oversubscribed at $20, but lets say the owners are only floating 15% of the company now and plan to sell the remainder over the next 5yrs. While they could easily get $20/share now, they might build up some goodwill with investors and sell at $18.50 to hopefully help with the remaining 85% later. The banks, although receiving slightly less of a fee, will generally be happy to oblige because it is their retail and institutional clients who benefit from this, and will be happy with their bank.

Thanks! Fairly tough subject to find the right answers if you're not working in the field.

I'm doing a study on the influence of pre-IPO shareholders retention on underpricing, so in order to get the causality correct I needed to know whether i.e. VCs can make their decision after knowing the final offer price.