How does a private company go public? What is the process and requirements? Is there a set amount of profit that a company has to make before going public?
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There are lots of rules around the process, but the biggest one is that your company must play by the Security and Exchange Commission’s (SEC) rules. There are rules around what you report, how you report it, and a few minor leadership structure requirements. A set amount of profit is not required; the company can make no profit at all. You make an application to the SEC, called the S-1, with the details of your company, your financials, and why you want to go public. They review it to make sure you’re compliant, and then you make a phone call to an investment bank, like JP Morgan.
You negotiate with them to “underwrite” the company. This means that you say “Hey, JP Morgan, I would like to sell 1 million shares of my company!” And JP Morgan says “Sure, we’ll give you 50 dollars per share, for a total of $50M”. And you say, “sounds fair.”
By the way (and a lot of people get this wrong): when JP Morgan gives you that money, that’s the ONLY time in the process that the company itself makes money. Everything after this is _individuals_ (or other companies) making money by flipping the stock.
So you sell the shares, and the company gets $50M. 10 minutes later, JP Morgan resells the shares on the public exchange, where people like you and me can buy it.
Why doesn’t the company just sell the shares directly on the public exchange? Short answer, it’s tricky to do that, but sometimes (Spotify) that’s what happens.
Congrats, now you’re public!
About requirements: I should add that technically you must explain in paperwork to the SEC _why_ your company needs the money. This used to be important, and the SEC could reject your application if the answer didn’t seem reasonable. Now, however, it’s generally good enough to say something vague, with the real reason being “we want to get rich”
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