ELI5- When a company IPOs, isn’t it at the point that VCs have already extracted all the value, and they’re cashing out? Do they have to hold?
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Not necessarily. VCs may use the IPO to cash out some, but may also hold onto shares if they still believe in the ling term prospects of the company. Maybe by time of IPO they’ve made 20x their initial investment, so they sell enough to take their initial investment off the table, and perhaps some more on top of that while still keeping a substantial chunk of their equity in the company. They’d want to free up cash to invest in new companies, but an IPO is by no means an end to the run up in value of the company. And their investment now being public they can easily sell at any time in the future should they decide it’s time to do so.
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