Initial Public Offerings

What is a stock? A stock is ownership in a company.


The first time a company issues it’s stock for investors, it is called “going public”. By “going public”, a company is making it’s stock available to investors oustside of the company. The process of going public can be a long process. To start, the company registers the stock with the Securities and Exchange Commission (SEC) and makes the stock available to investors through an initial offering – often referred to as an IPO, or, initial public offering.

However, an IPO initially begins with an entrepreneur who has started and grown a company from an idea. This usually starts with an entrepreneur investing their money into their idea to create a product or service. From there, they raise capital from banks, family, or friends to fund growth. Funding for additional growth typically comes from venture capitalists or the private equity market. It is when a company’s growth outstrips the availability of private funding that a company decides to go public.

First, management goes to investment bankers who underwrite the offering by buying the public shares and agreeing to sell them to the public. The investment bankers help put together a detailed review of the companies management, financial history, it’s offer (product/service), and the companies potential and risks.

From there, the stock is promoted to institutional investors and the stock is made available to the public for purchase. The stock then rises and falls from there.  While there are other ways of offering stock, this is the primary way most companies ‘go public’.