Today, competing in a flooded marketplace is more of a challenge than ever before. Since the rise of the stock market in the late 1990s, the idea of initial public offerings (IPO) has become an increasingly popular tool for smaller companies looking for capital. Many of today’s large corporations at one point issued a public offering in their early stages.
Typically, initial public offerings involve a company putting up anywhere from 10 to 15% of the entirety of the business for sale. In doing so, the capital they gain from investors can be used to expand their organization, allowing for increased output, higher rates of production, and the implementation of new products and services.
By selling shares for a lower price than they’re actually valued at, companies and individuals will be able to invest in the business in hopes of receiving revenue from future production. Most often, IPO prices sell shares for around 13 to 15% less than what the regular trading price would be.
To ensure that investors will buy substantial amounts of stock in enough time for the company to expand and compete, IPOs are only held for a designated amount of time until the predetermined amount of stock is purchased. Investors end up competing with each other not to be left behind on a company that could in the future end up being an enormous success.
One of the most successful IPO filings of recent years was from the athletic equipment manufacturer FitBit. During their public offering, the company offered over 36 million shares for sale on June 16. Their IPO at the time was valued at an estimated $741 million. Since the offering, FitBit’s stock has risen by 50%. For consumers, it seemed as if FitBit’s products blew up in popularity over a very short span of time, likely being a result of this successful IPO.
However, before a company chooses to take this route, a company should ensure that there is interest in their stock, as well as have a coordinated plan that will offer the most capital. Hedge fund prime brokers are a common service used by companies to manage the trading and securities lending.
If handled correctly, initial public offerings could mean the difference between substantial growth or failure. Without IPOs, we may not have some of the powerhouse companies we rely on today.