Dumb question about IPOs

You left out how much cash you have on hand to pay the people the money they gave you back. Which would just add to your company's value, would make it worth over 1 million. If you have no money then you can't do it and it's just a bad question.

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>>1711322

Sorry I still don't understand.

When companies do IPOs is usually to "raise money for expansion plans" right? But if the company is yours and you are selling YOUR stock to these people, then how are you better off at the end of it?
I mean the cash you get is re-invested in the company?

Can you give me an example for dummies?

>>1711288
>Wouldn’t that mean that by doing the IPO I cucked myself out $250K?
$1 million minus $500k= $500k
you came out ahead, a head.

you sold $500k worth of your company and had $750k left instead of $500k. The other $250k went back to the shareholders because their shares increase too.

>>1711288
also assuming you run the company you can always take the value of that extra $250k the shareholders own and just spend it.

so you gain the full value of the $500k with the caveat that you likely need to spend it on the company.

>>1711605
Selling stock is equity debt, people pay a sum of money for bond guaranteeing them a part of your company. Because it is common stock, they cannot come barging into your office demanding 1/1,000,000 of profits.

When you sold half your company for 500,000 you got a cash injection for 500,000. Yes, if you put that cash in your reserves, your holdings are now worth 750,000 and the company just made 500,000 - essentially raising the value of each share to $1.50/sh

So now you, the owner have 500,000 stock at $1.50 a share and the company has $500,000 of free money laying around and 1,000,000 valuation.

You only made a bad deal if you then sell now. What can you do with 500,000 in extra money? Can you hire a stronger sales team? Are you able to pay off debt?

What if the market loves the idea of your company and the stock trades to $2 the next day? You are now at a million and your company has spending money.

In sum, you are selling your stock for two reasons - cash injection and to have a market valuation.

>>1711610
He started with a company woth $1million. If he sold the company rather than do an IPO, he would have a million compared to 50% of a $1.5 million ($750k).

>>1711322
I'm pretty sure you are going forward with the IPO in hopes of growing the company over 2 million, which in your scenario would put you above your original $1 million stake. Nothing is certain, but one should have always have a goal in mind. If a company worth $1 million is all you want, then congrats. Otherwise, it's time to strategize.

>>1711620
>>1711288 sorry, tagged wrong comment.

IPOs benefit the share owners, not the company. The company doesn't own the shares that get sold to the public, the shareholders do.

Going public indirectly helps the company because it gives them access to additional capital raising mechanisms, such as new share offerings and the bond markets. You don't do an IPO to grow the company; you do an IPO to cash out and position the company for growth down the line.

>>1711288
If the value of your company stays the same after raising money you fucked up, you should be using the money to increase the value of your company.

>>1711625
>If the value of your company stays the same after raising money you fucked up
Huh? What if you raise money by issuing debt, like bonds or getting a bank loan?

Stop being retarded.

>>1711671
The point of raising money is to do something with the money that increases the value of your company, retard. You don't raise money just to do it

>>1711728
>The point of raising money is to do something with the money that increases the value of your company,
No, sometimes the point of raising money is to pay the bills. Liquidity is a thing. A pretty important one.

Dumbass.

The point of the IPO is to access public liquidity and market value. Zuckerberg was worth less than a billion before fb being public. After public and a few years of stock growth, zuckerbergs shares are worth more because the public has valued his shares highly. You unlock potential wealth via going public

>>1711288
>Then, since I invest those $500,000 in the Company
I think this is the problem.
You're imagining a scenario where you owned all the shares in a company worth $1 million, and you sold half of them for $500k, yeah?
You then 'invest' that money in the company... how? If you just gave the money to the company as a gift, despite the fact that you only own half of that company, then yes, you just threw away $250k. But obviously you shouldn't do that, it's silly.

Let's say you instead 'invest' your $500k in the company by purchasing new bonds issued by the company. This gives the company $500k cash, but also a $500k liability to pay the bond holder (i.e. you). It costs you $500k, but you gain bonds worth $500k. Basically it all nets off. You and the company each still own net assets of $1 million.

Alternatively, you might use your $500k to subscribe for new shares in the company. This would increase the value of the company, but it would also increase the value of your shareholding. The value of the new shares should be basically equal to the value the company is expected to have after the capital raising, divided by the number of shares that will be on issue after the capital raising. If we imagine the company is only issuing shares to you, then your $500k should get you 500,000 new shares (i.e. the price will be $1 each). The company is now worth $1,500,000, and has 1,500,000 shares on issue. You now own two thirds of those shares, with a combined value of $1 million.
You'll notice that the value of the other shareholders' investment in the company has not changed. They now collectively own only a third of the company rather than a half, but the overall value of the company has increased so that the third they own now is worth as much as the half they owned before.

Obviously in real life things aren't as neat as this, but the point is that you don't 'invest' in a company by just giving money to it. You get something (whether debt or equity) in return.

>>1711728
Are you fucking retarded? If you apply for a loan from the bank and get approved, yes you get x amount of money, but you are also x amount of money more in debt. i.e. x+(-x)=0 That means you are were you started, fag

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>>1711613

Thanks senpai.
So in essence, in every IPO the owner expects the initial price to raise after the opening, or that the cash inflow brings a return high enough to offset the "loss" he incurred initially after a while?

>>1711624
>>1711747
So as far as the company goes, it doesn't automatically get any new cash after the IPO? Only it has access to more ways to raise cash?
On the other hand, the owner(s) has the ability to readily sell his stock easily in the stock market?

>>1711757
> The value of the new shares should be basically equal to the value the company is expected to have after the capital raising, divided by the number of shares that will be on issue after the capital raising.
>The company is now worth $1,500,000, and has 1,500,000 shares on issue. You now own two thirds of those shares, with a combined value of $1 million.

Ohhhhhh. So this is what I was missing. Now it makes sense. I'm a faggot.

Thanks a lot m8.

>>1711288
That's not how it works.

Say when you made the company you put in $1MM for 100% control and set the par value of stock to $0.01/share. You now have outstanding stock of 100MM shares. When you set an IPO, you set an IPO price, what the underwriter thinks it will sell for, say in your case $10. You give up a huge portion of the 100MM shares you own, some goes to the underwriter, most goes to the public market. Now as soon as the IPO hits, you have what's called additional paid in capital. If you gave up 50MM shares and the underwriter set the price at that $10 mark that means as a company you've raised, $500MM dollars. The total equity at par didn't change just that APIC. So yes, your equity amount overall increased and so did you cash in exchange for future earnings. So before the IPO you were worth whatever you Assets sans Liabilities was. Now you're worth the same but you have more because of the APIC. But for every $1 of profit you owe $0.50 to your other shareholders.