What is an IPO?
When a company gets big, the owner might decide is time for it to go public. Going public refers to a private company’s initial public offering (IPO). This means the company starts selling its shares to the public.
As a private company, the company has 1 or few owners. After an IPO, the company will have many owners (basically anyone who wants to buy a share).
Why would a company go public?
- Money: it raises a lot of cash for the company. With that money it becomes easier to grow and scale. Reminder: there are huge companies that decide to stay private, such as Mars, Ikea or Aldi.
Why not go public?
- If you don’t make your shareholders happy you can be sidelined or even fired.
- The cost of complying with regulatory requirements can be very high. Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments, and accounting oversight committees.
The process of going public explained.
- The company finds 1 or several investment banks such as Goldman Sachs, J.P Morgan, Bank of America…
- The bank works with the company to determine what type of security to issue, the number of shares, an an offering price.
- The bank is the middle man. It is in charge of placing and selling the shares to the people. The bank’s goal? It gets a commission. And if it can’t sell them? The company won’t go public. This was WeWork’s case.