An initial public offering (IPO) is the first sale of stock issued by a company to the public.
Prior to an IPO a company is considered private, with a relatively small number of shareholders made up primarily of management, and professional investors like venture capitalists.
An IPO is the first opportunity for the public to purchase shares traded on a stock exchange - aka “going public.”
The process of going public isn’t easy, companies have to work through a lot of red tape. The company’s owners have to disclose all of the company’s financial and accounting information. After a company goes public, they will also be subject to strict rules and regulations. They have to form a board of directors and report auditable financial and accounting information every quarter to the Securities and Exchange Commision (SEC).
So why have an IPO?
Going public raises a great amount of money for the company to grow and expand. Private companies have other options to raise capital – like borrowing, hosting private rounds of funding, or by being acquired by another company. But, the IPO option raises the largest sum of money for the company and its early investors.
Some of the largest IPOs to date are:
- Alibaba Group (BABA) in 2014 raising $21.8 billion
- VISA (V) in 2008 raising $17.9 billion
- ENEL Spa in 1999 rasing $16.5 billion
- Facebook (FB) in 2012 raising $16 billion
- General Motors (GM) in 2010 raising $15.8 billion
- Deutsche Telekom (DT) in 1996 raising $13 billion
- AT&T Wireless (AWE) in 2000 raising $10.6 billion
- Kraft Foods (KFT) in 2001 raising $8.7 billion