My (possibly incorrect/incomplete) understanding is that if a pre-IPO company needs $1000, they can issue 100 shares for $10 each. If people outside the company actually buy all 100 shares at that price (which I think almost always happens), then the company gets the needed $1000. Thereafter, if the stock price becomes $15 or $2, how does it matter to the company? They’ve already received the $1000 they needed, right? Any subsequent trading isn’t actually generating money to run the company, right?
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Good question. The answer is a couple of reasons. M&A, a lower share price means you can be taken over easily by other companies if they think management is running the company wrong. Secondly future capital raisings, ipo isn’t the only way a company gets money from the stock market, seasonal capital raisings can occur after the ipo. A lower stock price means the company can raise less money. This is because capital raisings dilute ownership. Sure a $1 stock can raise 10 million but they have to issues significantly more shares (and cause massive dilution) compared to a $100 stock. Also capital raisings need to be approved by shareholders (because of dilution). Lastly management compensation. Managers get compensation through stock options sometimes, as such there is an incentive to raise the share price above the options strike price. Furthermore shareholders that are not happy with management can call for a shareholder meeting and vote to oust current management. Although if you are a minority shareholder you will probably just sell.
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