What does IPO (Initial Public Offering) mean ? | The Indian Era

What is IPO?

IPO stands for initial public offering. It’s the very first sale of a stock issued by a company on the public market, which essentially means you’re turning your private company into a public one. So, when it’s private, a company is normally owned by a small number of investors. 

That usually consists of people like you, your friends or parents, plus professional investors like a venture capital firm. Once the company goes public, you’re opening up that business to be owned by a large number of people. In effect, the firm goes from being owned by just a few people to potentially tens of thousands of shareholders.

So why to go public? 

Well, going public raises a lot of cash for a company. With that money, it becomes easier to scale and grow, invest in infrastructure and attract top candidates. Plus, there’s the bragging rights you get from being listed on a stock exchange. It’s important to note that large companies can also stay private too. 

After all, going public isn’t a simple process,normally taking about four months to complete. The company will start with finding what’s known as an underwriting firm, typically an investment bank or several. If and when the firm takes on the job, they put up the money to fund the IPO, essentially ‘buying’ the shares before they’re actually listed anywhere. The firm works with the company to determine what type of security to issue, an offering price, the number of shares and the optimum time to bring a company to the public market. 

But going public can also mean a nice pay day for the business’ founders and early investors. You often hear about people becoming millionaires,or even billionaires, after their company goes public. 

A few of the biggest IPOs in history include Facebook, Visa, and General Motors. And in 2014, Alibaba smashed the record, with its debuton the New York Stock Exchange bringing in $25 billion.

To commemorate the event, most stock exchanges hold a ceremony of sorts. At the New York and London stock exchanges, you’ll ring the bell. At the Stock Exchange of Hong Kong, you’ll strike the gong.