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  • As the saying goes, ideas are a dime a dozen.

  • Acting on an idea though, can make all the difference.

  • Say you turn your vision into a startup.

  • It starts small.

  • Then it gets even bigger.

  • Then it gets even bigger.

  • Until one day, you may get to decide it's time for your company to go public.

  • IPO stands for initial public offering.

  • It's the very first sale of a stock issued by a company on the public market,

  • which essentially means you're turning your private company into a public one.

  • So, when it's private, a company is normally owned by a small number of investors.

  • That usually consists of people like you, your friends or parents,

  • plus professional investors like a venture capital firm.

  • Once the company goes public, you're opening up that business to be owned by a large number of people.

  • In effect, the firm goes from being owned by just a few people to potentially tens of thousands of shareholders.

  • To commemorate the event, most stock exchanges hold a ceremony of sorts.

  • At the New York and London stock exchanges, you'll ring the bell.

  • At the Stock Exchange of Hong Kong, you'll strike the gong.

  • So why go public?

  • Well, going public raises a lot of cash for a company.

  • With that money, it becomes easier to scale and grow, invest in infrastructure and attract top candidates.

  • Plus, there's the bragging rights you get from being listed on a stock exchange.

  • It's important to note that large companies can also stay private too.

  • IKEA, Mars, Aldi and State Farm are just some examples of massive companies, that are private.

  • After all, going public isn't a simple process, normally taking about four months to complete.

  • The company will start with finding what's known as an underwriting firm,

  • typically an investment bank or several.

  • If and when the firm takes on the job, they put up the money to fund the IPO,

  • essentially 'buying' the shares before they're actually listed anywhere.

  • The firm works with the company to determine what type of security to issue, an offering price,

  • the number of shares and the optimum time to bring a company to the public market.

  • In the U.S., they also handle registering with the U.S. Securities and Exchange Commission,

  • which makes sure all of the financial information has been disclosed and is accurate.

  • Then you're finally good to go.

  • The underwriter's goal is to sell shares to the public for more than it paid the company.

  • After all, that's how they make their money.

  • But going public can also mean a nice payday for the business' founders and early investors.

  • You often hear about people becoming millionaires, or even billionaires, after their company goes public.

  • Here's why.

  • If you've worked at a private company that's intending to go public one day,

  • sometimes part of your compensation is given through equity, part-ownership of the firm.

  • It's a way to hire talented people without a lot of cash upfront.

  • And if the company does go public, you get a piece of it at its new valuation.

  • Here's an example.

  • When Snapchat went public in 2017, its founder Evan Speigel scored big.

  • Speigel got a stock grant of $636 million when the company went public.

  • The following year, he sold more than 2.6 million shares. The sale of his stock was equivalent to $50 million.

  • The number of companies going public is constantly fluctuating.

  • Globally, 1,764 companies floated in 2017, a nearly 50% increase since 2016 and the most IPOs since 2007.

  • 189 of 2017's IPOs were in the U.S., a 70% increase from the year before.

  • A few of the biggest IPOs in history include Facebook, Visa, and General Motors.

  • And in 2014, Alibaba smashed the record, with its debut on the New York Stock Exchange bringing in $25 billion.

  • All that said, going public has its drawbacks.

  • Publicly traded companies are subject to oversight by regulators

  • like the U.S. Securities and Exchange Commission.

  • And once you list your company on an exchange, you're not just reporting to yourself anymore,

  • you answer to all your shareholders.

  • If you don't make them happy, you can be sidelined, or even fired, from the company you founded.

As the saying goes, ideas are a dime a dozen.

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