Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process through which a private company offers shares to the public for the first time, transitioning into a publicly traded company. An IPO allows a company to raise capital from a broader investor base, facilitating growth, expansion, or debt repayment. Once the IPO is complete, the company’s shares are listed on a stock exchange, and it must adhere to the regulations governing public companies.

Example

In 2012, Facebook held its IPO, raising $16 billion by offering shares to the public, making it one of the largest tech IPOs in history.

Key points

• The process through which a private company offers shares to the public for the first time.

• Used to raise capital and transition into a publicly traded company.

• Shares are listed on a stock exchange after the IPO, subject to public company regulations.

Quick Answers to Curious Questions

Why do companies go public through an IPO?

Companies go public to raise capital, expand their business, and provide liquidity for existing shareholders.

What are the risks of investing in IPOs?

IPOs can be volatile, and the company’s future performance is uncertain, making them higher-risk investments compared to established stocks.

How do investors participate in an IPO?

Investors can participate in IPOs by submitting orders through brokerage firms or financial institutions before the shares are publicly traded.