What does it mean when a company “goes public”?
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Imagine you start a company to make widgets. You put in some of your own money to get started, and you own 100% of the company. The company is chugging along just fine…. you can make a few hundred widgets a month and sell them at a profit.
You decide you want to get bigger. In fact, to meet the pent-up demand for One_Tumbleweed’s widgets, you want to build a million-dollar widget-making factory. Where do you get that money? There’s a few options. You could take out a loan from a bank, for instance. You could try to find 10 friends each willing to invest $100,000 in your company.
Or, you can “go public.” You divide up the ownership of the company into 100,000 shares. You keep 50,000 of them (so you now own half the company), and you try to sell the remaining 50,000 for $20 each. Congrats, you’ve just raised your million bucks — you’ve simply traded half the ownership in the company to do so.
A private company has a maximum number of people who can own shares in it. These shares can’t be sold on the general market because that would quickly expand the number of shareholders. If the company needs money, it has to find big investors.
So, for example, SpaceX (privately held) wanted to let a lot of early employees cash out on their stock they got in compensation. So they did a round of funding, one current big investment company bought a bunch of shares, and that cash was used to pay out those employees. Essentially, that investment company bought their shares.
This is obviously a bit complicated and it relies on finding investment companies to invest. So the company goes public, shares are listed on the stock market to be bought and sold by anyone. Existing shareholders have their shares converted to the public stock, and usually many more shares are issued so people can by the newly public stock.
All this mass selling of stock brings a lot of money into the company, which can then be used to expand the company. And now things like stock options for employees are a lot easier to manage.
Imagine you start a company to make widgets. You put in some of your own money to get started, and you own 100% of the company. The company is chugging along just fine…. you can make a few hundred widgets a month and sell them at a profit.
You decide you want to get bigger. In fact, to meet the pent-up demand for One_Tumbleweed’s widgets, you want to build a million-dollar widget-making factory. Where do you get that money? There’s a few options. You could take out a loan from a bank, for instance. You could try to find 10 friends each willing to invest $100,000 in your company.
Or, you can “go public.” You divide up the ownership of the company into 100,000 shares. You keep 50,000 of them (so you now own half the company), and you try to sell the remaining 50,000 for $20 each. Congrats, you’ve just raised your million bucks — you’ve simply traded half the ownership in the company to do so.
A private company has a maximum number of people who can own shares in it. These shares can’t be sold on the general market because that would quickly expand the number of shareholders. If the company needs money, it has to find big investors.
So, for example, SpaceX (privately held) wanted to let a lot of early employees cash out on their stock they got in compensation. So they did a round of funding, one current big investment company bought a bunch of shares, and that cash was used to pay out those employees. Essentially, that investment company bought their shares.
This is obviously a bit complicated and it relies on finding investment companies to invest. So the company goes public, shares are listed on the stock market to be bought and sold by anyone. Existing shareholders have their shares converted to the public stock, and usually many more shares are issued so people can by the newly public stock.
All this mass selling of stock brings a lot of money into the company, which can then be used to expand the company. And now things like stock options for employees are a lot easier to manage.
A company going public means that they’re going to take a percentage of ownership shares in the company and put it up for sale on a public stock exchange like the NYSE or NASDAQ. This gives them access to a lot of shareholder money to finance growth, but they are now required to publish detailed financial records about their operations to enable public investors to make informed decisions. They’ll need to publish annual summaries of their profits, assets and liabilities, cash flows, etc.
A company going public means that they’re going to take a percentage of ownership shares in the company and put it up for sale on a public stock exchange like the NYSE or NASDAQ. This gives them access to a lot of shareholder money to finance growth, but they are now required to publish detailed financial records about their operations to enable public investors to make informed decisions. They’ll need to publish annual summaries of their profits, assets and liabilities, cash flows, etc.
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