The term initial public offering (IPO) has been a buzzword on Wall Street and among investors for decades. An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.
Money is created in two ways. Either the company creates new shares or sells some of the existing ones. The former is called primary or fresh issuance of shares and the latter is called secondary or offer-for-sale issuance. Many companies do a mix of both.
Companies hire investment banks to market, gauge demand, set the IPO price, and date.
An IPO is a big step for a company as it provides the company with access to raising a lot of money. This gives the company a greater ability to grow and expand. The increased transparency and share listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as well.
It can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.