Going Public

Comprehensive Definition

Going Public refers to the process by which a privately-held company offers its shares to the general public for the first time. This occurs typically through an Initial Public Offering (IPO). In this transition, ownership shifts from a small group of private investors to a wider range of public shareholders. Once public, the company must comply with extensive regulatory and legal requirements imposed on public companies, including regular financial disclosures, governance policies, and adherence to specific market regulations.

Examples

1. Facebook IPO: One of the most publicized IPOs, Facebook went public on May 18, 2012. It raised $16 billion, valuing the company at $104 billion at the time.
2. Google IPO: Google went public on August 19, 2004. The IPO raised $1.67 billion, giving the company a market capitalization of $23 billion.
3. Beyond Meat IPO: A newer example, Beyond Meat went public on May 2, 2019, and raised $240 million, with a market capitalization nearing $1.5 billion.

Frequently Asked Questions

What are the main steps involved in going public?

1. Hiring Underwriters: A company typically hires investment banks to guide them through the IPO process and to underwrite the new shares.
2. Filing the S-1 Form: To register with the SEC (Securities and Exchange Commission), a company must file this document that details financial and business information.
3. Preliminary Prospectus: Provided to potential investors detailing the company’s financial status, business plan, and objectives.
4. Roadshow: Company executives present the business case to potential investors.
5. Setting the Price and Number of Shares: Finalizing the dollar amount per share and the number of shares to be offered.
6. Trading Begins: Shares are made available for trading on an exchange.

What are the advantages of going public?

• Access to capital: Companies can raise substantial amounts of money by issuing shares.
• Increased visibility and reputation: Public companies often receive more attention from the media and analysts.
• Liquidity for shareholders: It provides early investors and employees an avenue to sell their shares more easily.

What challenges do companies face when going public?

• Regulatory scrutiny: Public companies are subject to stringent reporting and compliance requirements.
• Pressure to perform: The need to meet or exceed quarterly financial expectations.
• Loss of control: With public shareholders, company founders might lose some control over business decisions.

Related Terms

• IPO (Initial Public Offering): The first time a company offers shares to the public.
• Underwriter: A party, usually an investment bank, that administers the public issuance and distribution of securities from a corporation.
• Prospectus: A legal document issued by companies that are offering securities for sale, detailing the business, financial condition, and risks involved.
• SEC (Securities and Exchange Commission): The U.S. federal regulatory body that oversees securities transactions, activities of financial professionals, and mutual fund trading to prevent fraud and intentional deception.

Online References

1. Investopedia: Initial Public Offering (IPO)
2. SEC: Initial Public Offerings (IPOs)
3. Harvard Business Review: When is the Right Time to IPO?

Suggested Books for Further Studies

1. “Initial Public Offerings: An International Perspective” by Greg N. Gregoriou
2. “IPO Bankers: Corporate Financial Development” by Sebastian C. Müller
3. “Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis” by Norm Champ

Fundamentals of Going Public: Securities Industry Basics Quiz

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