Private Preparations:
Before undergoing an Initial Public Offering (IPO), a company operates in the private domain, with a limited number of shareholders comprising founders, family, friends, and select investors such as venture capitalists. This pre-IPO phase sets the foundation for the company’s growth.
IPO Decision and Growth Stage:
The decision to go public is a pivotal one, typically made when a company deems itself mature enough to navigate SEC regulations and shoulder the responsibilities associated with public shareholders. While unicorn status, denoting a private valuation of around $1 billion, is a common milestone, companies with strong fundamentals and proven profitability potential may qualify for an IPO at various valuations.
Underwriting and Share Pricing:
IPO shares undergo a meticulous pricing process through underwriting due diligence. As a company transitions from private to public ownership, the conversion of private shares to public ownership is a significant aspect. Underwriting may involve special provisions addressing the nuances of this shift.
Investor Opportunities:
The IPO marks a crucial juncture for private investors to realize returns. Whether holding onto shares in the public market or selling for gains, this transition provides an opportunity for private stakeholders to capitalize on their investments.
Public Market Dynamics:
Simultaneously, the IPO opens up the public market, inviting a diverse array of investors—both individual and institutional—to buy shares and contribute to the company’s shareholders’ equity. The public market provides a platform for millions to invest in the company.
Shareholders’ Equity Transformation:
The number of shares sold and their corresponding prices play a pivotal role in determining the company’s new shareholders’ equity value. Shareholders’ equity, representing ownership, undergoes a significant increase with the cash infusion from the primary issuance during the IPO.