Initial Public Offerings (IPO)
What is it?
An Initial Public Offering is the offering of shares of a private corporation to the public in a new stock issuance. Offering public shares allows a company to raise capital from public investors.
How does it work?
When a company goes public, all privately owned shares convert to public ownership. This essentially means that the existing shareholders’ shares become worth the public trading price. The transition from private to public ownership is typically a good time for initial investors to cash in on the returns they were expecting. These initial investors can also hold onto their shares in the public market and gradually sell them off for financial gain.
By transforming the private company into a public one, millions of investors have the opportunity to buy and sell shares which ultimately contribute capital to the company and its shareholders.
When is this relevant?
Typically, companies who experience enough growth to switch to publicly traded, reach a valuation of approximately $1 billion. This is what’s typically known as unicorn status. However, private companies who have experienced such growth (including overall profitability) without reaching $1 Billion in revenue, can also qualify for an IPO. This typically depends on market competition and the company's ability to fulfill listing requirements.