Definition of IPO

What is an "IPO"? What does the term "IPO" mean?

The term IPO, which stands for "Initial Public Offering", refers to the time when a company issues shares to the public for the first time.

What's the point of an IPO?

The main point of an IPO is to raise money for the company. Investors pay cash to buy shares in the company, and this cash goes straight to the company (fees are paid to the brokers that are involved in the IPO process, of course). This money is usually used to finance the future growth of the company.

Very large privately-held companies go public as well. In the case of a company like Goldman Sachs, which went public in 1999, there are different reasons for going public. Goldman Sachs went public in order to provide liquidity for its major shareholders and to make it easier to facilitate acquisitions.

In short - there are any number of reasons why a company might chose to participate in an initial public offering, but the main reason is usually to raise capital and gain access to cheaper ways to raise capital.

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