How does an IPO raise money for a company if all the shares are coming from current equity owners?

The Power of an Initial Public Offering (IPO): Raising Capital and Fueling Growth

An Initial Public Offering (IPO) is like a company’s grand entrance into the financial world—gaining public recognition and, most importantly, raising fresh capital. Here’s a breakdown of how an IPO works in simple terms:

Issuing New Shares
In an IPO, a company issues new shares to the public, generating new capital that flows directly into the company’s coffers. This money is often used for expansion, launching new projects, or reducing debt.

Example: Consider Zomato’s IPO, where the company raised ₹9,375 crores by issuing new shares. This capital was earmarked for driving the company's growth and expansion—a major boost to its business.

Selling Existing Shares
Along with issuing new shares, existing shareholders like founders, early investors, and employees may sell part of their shares during the IPO. While this doesn’t generate new capital for the company, it allows these investors to cash in on their holdings.

Example: Facebook’s IPO followed a similar structure, with existing shareholders—such as employees and venture capitalists—selling a portion of their shares. Although this didn’t directly benefit Facebook financially, it provided an exit opportunity for early investors. It’s like a grand finale after the party!

The Key Insight
While it may seem unusual that existing shareholders sell their shares during an IPO, the real value comes from the new shares the company issues, raising fresh capital. This influx of funds supports growth, drives innovation, and helps fund future plans.

An IPO is more than just selling shares—it’s about leveraging those shares to accelerate a company’s trajectory and reach new heights.


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