3. IPO stands for “Initial Public Offering.”
An IPO is the first time a company introduces
their stock to potential stock investors.
An IPO is the first chance that stock investors
get to purchase stock in that company.
4. An IPO is similar to:
A new product being
introduced to the public
for the very first time
such as a new model car,
new model computer, or
newly built house.
6. The process goes like this:
1. A privately held company wants to expand and needs
financing. They decide that stock is one way that they
can raise money.
2. They determine the amount they need to raise, which
will determine how many shares to issue.
3. They hire an investment bank to buy and sell shares
to the public.
4. They sell shares to investment bank.
5. The proceeds (funds) from the shares to the
investment bank are used by the company to finance
operations.
6. The investment bank sells shares to general public.
7. New Stock Offering - IPO
Corporation Corporation sell shares to
investment bank.
Corporation receives cash Investment bank sells
Investment Bank shares to investors.
from investment bank.
Investment Bank receives Investor
cash from Investors.
At this point the stock is
in the market or in the
public.
8. New Car Model Introduced
Car Manufacturer Car manufacturer sells new
models to car dealer.
Car dealer receives new Car Dealer sells new car
Car Dealership model to consumer.
models.
Car Dealership receives Consumer
cash from consumer.
At this point the new car
model is in the market
or in the public.
9. New Stock Offering – IPO (A Second Look)
Corporation Corporation sell shares to
investment bank.
Corporation receives cash Investment bank sells
Investment Bank shares to investors.
from investment bank.
Investment Bank receives Investor
cash from Investors.
At this point the stock is
in the market or in the
public.
11. How STOCK changes hands after the IPO…
Investment Bank
Investor
or Stock Broker
Notice that the corporation is not in the equation. Stock is
sold by investors to investors through an investment bank
or stock broker.
12. How CARS change hands after they are introduced…
Consumer Car Dealership
Notice that the car manufacturer is not in the equation.
The car is sold by consumers to consumers through a car
dealership.
14. Myth:
People think that companies receive money
from stock after the IPO. This is absolutely not
true. The only time companies get money
from stock after the IPO is:
• when they issue another stock offering
• or secondary offering
15. Let me explain:
A company issues 5000 shares to raise $1
million during an IPO. At this point there are
only 5000 shares out in the public. After a
couple of years the company decides they
want to expand so they issue 5000 more
shares to raise (secondary offering) another
$1 million. At this point they have raised $2
million from two separate stock offerings and
have 10,000 shares outstanding....
16. In Summary:
• IPO is the first time a company introduces
their stock to the public.
• Companies use a investment bank to get
shares to the public.
• Companies do not receive any money from
their stock after the IPO.