On March 21, Reddit shares soared 48% during their IPO debut on the New York Stock Exchange (NYSE). Rather than getting into the specifics of the company’s turn from private to public, it seems like a good time to step back and explain what exactly an IPO is and what to know.
What is an IPO?
IPO stands for “initial public offering” and is frequently referred to as “going public.” This is when shares of a private company are made available to the general public for the very first time – officially making the company publicly-owned rather than private.
An IPO gives a private company the ability to raise the kind of capital that may be harder to achieve through private investors. This can allow companies to grow and expand much more quickly, and can also be a way to pay out early investors with a solid return on their investment. Additionally, an IPO can create a lot of publicity and brand awareness for a company.
Although seemingly simple enough, the process of getting to an IPO is hardly easy. The process requires certain parameters to be met, costs a lot of time and money, and requires filing nonstop paperwork with the U.S. Securities and Exchange Commission (SEC). Additionally, going public opens up a company to new responsibilities, regulations and oversight that private companies simply do not have to worry about.
The first IPO
Would you be surprised to know that the very first IPO was held in 1602 in the Netherlands? The Dutch East India Company announced in their founding charter that “All the residents of these lands,… may buy shares in the Company.” There was no minimum or maximum amount required and every Dutchman was invited to invest. When the IPO closed on August 31 that year, 1,143 individuals had invested in the company – including the co-founder’s maid.
Upcoming IPOs
Although only a handful of IPOs make the front pages of the news, on average one to two hundred companies go public each year. In fact, over 40 companies have already had IPOs this year, with many more expected to come.
Some of the companies that experts are anticipating going public this year include Skims, Discord, Chime, Turo and Klarna. None of these companies are guaranteed to go public, but they all have the makings of a company that is ready to make that step and may be worth keeping an eye on.
