the initial public offering -ipo
TRANSCRIPT
The IPO – Initial Public
OfferingOffering
What Is an IPO
The Process
The Myth
WHAT IS AN
IPO?
� IPO stands for “Initial Public Offering.”
� An IPO is the first time a company introduces
their stock to potential stock investors.
� An IPO is the first chance that stock investors
get to purchase stock in that company.get to purchase stock in that company.
� A new product being
introduced to the public
for the very first time
such as a new model car,
new model computer, or
An IPO is similar to:
new model computer, or
newly built house.
THE PROCESS
1. A privately held company wants to expand and needs financing. They decide that stock is one way that they can raise money.
2. They determine the amount they need to raise, which will determine how many shares to issue.
3. They hire an investment bank to buy and sell shares
The process goes like this:
3. They hire an investment bank to buy and sell shares to the public.
4. They sell shares to investment bank.
5. The proceeds (funds) from the shares to the investment bank are used by the company to finance operations.
6. The investment bank sells shares to general public.
New Stock Offering - IPO
Corporation receives cash
from investment bank.
Corporation sell shares to
investment bank.
Investment bank sells
shares to investors.
Corporation
Investment Bankfrom investment bank. shares to investors.
Investment Bank receives
cash from Investors.
At this point the stock is
in the market or in the
public.
Investor
New Car Model Introduced
Car dealer receives new
models.
Car manufacturer sells new
models to car dealer.
Car Dealer sells new car
model to consumer.Car Dealership
Car Manufacturer
models. model to consumer.
Car Dealership receives
cash from consumer.
At this point the new car
model is in the market
or in the public.
Consumer
New Stock Offering – IPO (A Second Look)
Corporation receives cash
from investment bank.
Corporation sell shares to
investment bank.
Investment bank sells
shares to investors.
Corporation
Investment Bankfrom investment bank. shares to investors.
Investment Bank receives
cash from Investors.
At this point the stock is
in the market or in the
public.
Investor
LOOK AT HOW
STOCK & CARS
CHANGES
HANDS AFTER HANDS AFTER
THE IPO…
InvestorInvestment Bank
or Stock Broker
How STOCK changes hands after the IPO…
Notice that the corporation is not in the equation. Stock is
sold by investors to investors through an investment bank
or stock broker.
Consumer Car Dealership
How CARS change hands after they are introduced…
Notice that the car manufacturer is not in the equation.
The car is sold by consumers to consumers through a car
dealership.
THE MYTH
Myth:
� People think that companies receive money
from stock after the IPO. This is absolutely not
true. The only time companies get money
from stock after the IPO is:
• when they issue another stock offering• when they issue another stock offering
• or secondary offering
Let me explain:
� A company issues 5000 shares to raise $1
million during an IPO. At this point there are
only 5000 shares out in the public. After a
couple of years the company decides they
want to expand so they issue 5000 more want to expand so they issue 5000 more
shares to raise (secondary offering) another
$1 million. At this point they have raised $2
million from two separate stock offerings and
have 10,000 shares outstanding....
In Summary:
• IPO is the first time a company introduces
their stock to the public.
• Companies use a investment bank to get
shares to the public.
• Companies do not receive any money from • Companies do not receive any money from
their stock after the IPO.