this post was submitted on 24 Feb 2024
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What's an IPO?
Company goes on the stock market so anyone can buy stock in that company.
Usually means that said company makes a ton of money but also have to keep these new investors happy and make the company more profitable. Can often lead to enshitification.
Has always led to enshittification
Is there a case where it actually hasn't led to enshitification?
What's a stock?
stock is just a publicly listed company, they sell ownership (shares) of the company to the public. As part owner you can sometimes vote for what they will do (the company tends to hold over 50% so they decide everything still). Some companies will give their shareholders dividends which is money based on how much they make
You can also sell your ownership stake to others which is where you will make or lose most of your money
Shorting is betting a stock will go down, you borrow a stock and sell it before you actually own it. Then when the stock goes down in value you get to keep the difference
A piece or 'share' of a company you can buy.
Are often bought and sold on big 'stock markets' in places like New York and London.
Sometimes buying stock comes with benefits like having a vote on certain decisions or getting payments or 'dividends' from the company if it is very profitable.
Initial public offering, the first round of stock sales after a company goes public, usually to institutional investors rather than private ones.
Public means it's open to anyone, right? Not just institutional investors?
Correct, this means anyone will be able to buy/sell shares on the open market.
It's also why the financials are actually open to the public. They have to publicly disclose all financials/risk factors/etc before they invite the public to buy shares The idea is that institutional/wealthy investors are savvy enough to figure that out on their own.
No, the idea is that there are few enough owners that the owners communicate with the operators directly. If you owned 30% of a privately held company and the other owners lied about the financials to you that would still be a crime.
Not sure why you brought up lying, that's totally different (and still illegal, public or private).
The difference between raising public vs private money is whether or not you are legally required to actively disclose your financials/risks/business plans/etc. I can (legally) raise money from a wealthy family office with nothing but a phone call (basically how most angel investments work). I can't do the same if I'm trying to raise money from a random Joe off the street, that will land me in jail.
Again, like I said, it's because it's assumed that they have a direct connection to you to ask about the company and make decisions.
Thanks for the response. But on this:
Do what on their own? I don't quite follow what you are alluding to here.
Assessment of the company, its current finances, its past finances, and hopefully that will give them a decent forecast of the company's future viability.
In reality it's all just gambling.
Public fundraising laws exist to protect the average Joe from losing his life savings to fly-by-night hucksters while trying to ensure companies can still raise capital.
If you're a wealthy/sophisticated investor, the expectation is that you're already capable of assessing investment risk on your own (including, if you think necessary, getting your own lawyers, direct access to a company's financial reports, due diligence, etc). Average Joe, on the other hand, is required to be given audited financials, a prospectus that's vetted by regulators, explicit statements of share rights, etc etc.