IPO stands for Initial Public Offering. The Initial Public Offering is the first time a company begins to offer stock to the public. It is also called “going public.” Normally, companies will begin offering limited stock options to their employees, close affiliates, or customers. An IPO is a chance for growth on a much larger scale. Once the company has gone public, stock can be traded to those outside the company, and the stocks enter the jurisdiction of the Securities and Exchanges Commission (SEC). An IPO can happen at any point of a company’s lifespan, but it is more common in the early stages, when a company’s financial needs are increasing. Those who purchase stock from the company are investing in it. The IPO is considered to be a form of external financing, and depending on the industry and the company, can offer a substantial influx of cash.
An IPO can be a complicated endeavor. Investors naturally hope to receive a return on their investments. Public perception and other factors can contribute positively or negatively to the value of the stocks. If the company reports recent high earnings the stock value may increase, while poor earnings or news of bad decisions could have drastically bad effects on stock prices, with investors selling off quickly. An additional complication of an IPO is that the investors receive a voice in the decision-making process, which can reduce the amount of control exercised by the company’s higher-ranking executives.
In most cases, to coordinate its efforts when making an IPO, a company may hire an investment bank or other firm with valuable expertise.