The SPAC, or special purpose acquisition company, is also known as a “blank check company.” This is a relatively new product, and grew particularly popular during 20. With a SPAC, you form a shell company that exists only on paper. These institutional investors will then typically resell the stock on the market at large. This is called the “road show.” During the road show a company will typically hire an investment bank to seek institutional investors to buy the company’s stock. This process also means spending a significant amount of money on both bankers and lawyers, as the company needs to make sure that it meets all of the SEC’s requirements before issuing the first share of stock.įinally, when a company goes IPO it generally does so through large investment groups. During this process the company must organize and disclose its finances to both regulators and banks, at multiple different steps. When a company is first starting out, private investors will give the company money in hopes that they can resell their private shares for a profit once the company goes public.Īn IPO is a highly regulated process that can take well over a year. The underlying company does not receive any direct investment from the secondary market.)Īn IPO also allows the underlying company to raise money indirectly. (This is as opposed to the secondary market, in which traders sell shares to each other.
When a company sells shares of stock on the primary market, it gets the money from each share sold. This is what’s known as the primary market, in which the company itself sells its shares of stock. It does so by selling shares of stock on the open market. However, the resources available through private capital are typically relatively limited.īy issuing an IPO, a company can raise money from a vast pool of potential investors. Typically, a firm will establish its business model and product or service by operating based on private capital (raised from founders, private investors, loans, venture capitalists and other sources).
A company launching an IPO already exists. With an IPO, an existing company wants to create and sell stock on a public exchange.
An IPO, or initial public offering, is a common way for a company to raise money from public investors.
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