All over the world, we kept hearing news about Facebook going public. We heard about stocks, shares, markets, public this and public that,… and we heard about… IPO’s. What the hell is an IPO? What does all this jargon mean? Ohhhhh….Mark Zuckerberg is now worth $19.18 Billion after selling 503.6 shares at Facebook’s asking price of $38. Whaaaaaaaat!!! Well i got to the bottom of it! I did a lot of research on this and I will break it all down for you.
What is an IPO?
An IPO is the Initial Public Offering is the first time that a company’s shares are traded on a public market
Privately Owned companies have full control over their shares and are not required to disclose key financial information to the public. On the other hand, shares of publicly traded companies can be owned by anyone. Companies must answer to their shareholders and face increased regulatory scrutiny.
Why Would a company go public?
A company goes public because there is only so much money a company can raise on its own. The company therefore will go public in order to raise money that it needs to grow and achieve it future goals. The company decides how much money it needs to achieve its future goals, their team of underwriters then helps them determine a realistic amount they can charge for each individual stock in order to reach the amount of money they need to reach their growth goal.
Why have an IPO?
- Investors: Initial investors can make large profits while selling the shares they obtained early on at much cheaper prices
- Employees: In the early stages of most companies, employees are compensated with equity (shares of the company). Founders and employees can now cash in on their shares
- Company: The company raises capital to continue growing and expanding.It also opens doors to new investors.
How does an IPO work?
- File S-1: The company must first file an S-1 form with the US Securities and Exchange Commission (SEC), which includes basic business and financial records
- Underwriters (The Team): A group of investment bankers are selected to act as underwriters (people who vouch for the company), who help in raising capital from investors.
- Exchange: A public stock exchange such as the NASDAQ or NYSE (New York Stock Exchange) is selected, and a ticker symbol is chosen such as FB for Facebook and MSFT for Microsoft.
- Roadshow: The company and its underwriters make presentations to investors in major cities, seeking buyers for large blocks of shares.
- Preparation: Once the SEC has approved filing, the company and its underwriters set the opening price and numbers of shares that will be sold.
- Go Public: The investment capital is transferred to the company and investors get their shares. The next day, they begin selling those shares on the public market.
So, there you have it my friends. That is a little business blogging for you. I hope that this helped shed more light on all the news hitting all of us lately about our beloved Facebook. I know I learned a lot while doing the research for this post.
By
Ngo Okafor
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