An IPO, or initial public offering, is the process by which a privately-held company goes public by selling shares of its stock to the general public.
This process typically involves the company issuing new shares of stock, which are then sold to investors through an underwriting process managed by investment banks.
Going public through an IPO has several benefits for the company. It can provide the company with a significant infusion of capital, which can be used to fund growth and expansion. It can also provide the company with access to a larger pool of potential investors, which can help to increase the company's visibility and credibility. Additionally, going public can provide liquidity for the company's existing shareholders, allowing them to sell their shares on the public market.
However, going public also has its drawbacks. It can be a complex and expensive process, and it also exposes the company to increased scrutiny from investors, regulators, and the media. Additionally, going public typically involves significant changes to the company's governance structure, which can impact the control and decision-making power of the company's founders and executives.
An IPO is a major milestone for a privately-held company and those that own shares in that company. Venture Capital firms that own shares in a company that IPOs can often sell some or all of their shares at the time of the IPO or shortly after.
The timeline from when an investment is made into a private company to IPO should be thought about in years - often 5, 10 or 12 years later. The value or profits delivered to investors who own shares in a private company that decides to IPO will be dependent on the market capitalization (valuation) of the company at the time of IPO relative to the price paid for those shares when the company was private.