I am interested in how the amount of shares is determined initially and how the company determines how many shares they will keep. Also, what is the biggest “Pro” of going public and the biggest “Con”?
In: Economics
It is a massively complex process. I am happy to give you more details as needed but for now, consider my answers to your first three questions:
1) how many shares? Depends on what you’re doing your IPO for. If it’s a regular way startup, they will likely have a capital-raising goal and sell however many shares they need to sell to get that money. If they are a private-equity owned company, then they may float the entire amount that the sponsor owns, or plan for a more gradual exit. Consider that during the IPO process it’s not just the company selling (what’s called a “primary” offer) but also other insiders or large investors that want to cash out (“secondary”). So this depends on a lot of different factors.
2) pros and cons.
Con: you have to respect the disclosure requirements and broader discipline imposed on a public company. There is a lot of compliance costs – you have to file forms all the time with the SEC, if your CEO says stuff you have to make sure it’s not material, or if it is material that it’s disclosed to all investors at the same time, etc. – but also a lot of broader obligations to the investment community – you have to deliver on quarterly targets, give quality guidance, disclose much more about your business to people so that they can make informed decisions and actually buy your stock.
Pro: you have access to a gargantuan pool of capital that may be more generous than private markets. A classic case of this is Tesla, which is definitely a market darling and probably raised capital much more easily than it would in private markets. Also, the IPO is a big branding moment – think about how many people knew Zoom before the IPO vs how many people knew it after
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