- Sep 24, 2019
- Aug 08, 2019
The Initial Public Offering or IPO of a company is always an important step. In recent years, we have seen several technology companies (Facebook, Twitter, King, Google, Zynga, Groupon, etc.) raise millions and even billions of dollars in just one day using such IPO. But after all, what is this?
Capital Opening: The company now has shareholders
The IPO is basically the company's IPO. This means that, for the first time, it will be distributing shares on a stock exchange, allowing shareholders to acquire substantial parts of the company.
Thus, it ceases to belong to a single owner (or group) and begins to have shareholders, that is, anonymous persons who own a very small part of the company. In Brazil, it becomes an S.A., or Sociedad Anônima, in this way. Large investors can buy a large number of stocks and effectively make decisions within the company, but in general they are traded in the thousands on the stock exchange and are distributed among small investors for prices ranging from cents to thousands of dollars (or real, case of the São Paulo Stock Exchange, the Bovespa).
Large publicly traded companies tend to have shareholder councils, or partners, who consist of the company's largest investors, and can play an important role in making decisions as an indication of executives and other business policies. If the company is going badly, it is to the shareholders that the CEO needs to respond. However, many smaller companies prefer to keep their structure the same as ever, and often having shareholders does not influence decision making so much, even though pressure on the board increases.
At the end of the year, the company's profit is distributed among the shareholders, according to its share in the capital (it can retain a part of that amount to reinvest itself, passing on the rest). If the company has a thousand shares in the market and you own one, for example, you will receive 1/1000 of the company's net profit for that year. In general, this is not worth for small investors, who end up receiving pennies a year, and stocks serve only speculatively (buy today for $ 10 and sell tomorrow for $ 12). For large investors, however, this means millionaire deals. That's how Warren Buffett, the world's third richest man according to Forbes, made his fortune.
In general, when a company makes an IPO, its former owner usually gets a large share of the stock, allowing it to still be the majority shareholder. Mark Zuckerberg, for example, owns about 30% of Facebook.
If that means more responsibilities, why make an IPO?
There are many reasons for a company to open its capital, but in the end the two most important are money and recognition. Making an IPO effectively means selling a part of the company to people who will influence very little in making decisions, but it can raise significant amounts of money. The biggest IPOs in history have raised billions of dollars in just one day. This money can be used in major investments and acquisitions.
Besides money, being a publicly traded company also means having a benchmark in the market. If your company's stock is growing every year, it shows that your business is doing well, or at least passes that image on to your consumers and investors. If they fall, however, it gives the impression that something is going wrong, and measures will need to be taken to improve the company's image.
In general, large investments that appear in the media make stocks more expensive (such as launching a new product or acquiring a small business), and bad deals make them fall. This is not necessarily true for all cases, of course. In the end, the company's stock price ends up being an important part of your marketing.
In the world of technology
In recent years, technology companies have been the big stars in the processes of IPO. Beginning as small startups, these businesses pop up from nowhere and skyrocket in the marketplace, generating million-dollar revenue in just a few years. So when they first trade stocks on the stock exchange, a big hype comes around the IPO and speculation goes to the limit.
After all, everyone wants a piece of Facebook.