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 deal of money for a company to grow and expand, with the flexibility to raise more in the future. With the liquidity of a national exchange, executives, employees, and early investors also become free to sell their shares. An IPO allows a company to make acquisitions using publicly-traded stock as currency. IPOs are also a unique marketing event, which can promote a company's brand to an entirely new audience. And being a public company signifies a certain amount of credibility, transparency, and maturity to the marketplace.
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
- Rivian Automotive (RIVN) in 2021 raising $11.9 billion
- AT&T Wireless (AWE) in 2000 raising $10.6 billion
