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What is an IPO?

An IPO – an Initial Public Offering – is when a company decides to issue stock for the first time to raise money from external investors on a public market. This is also referred to as when a company “goes public” and officially becomes a publicly traded company. In the United States, a company needs to register with the Securities and Exchange Commission (SEC) before going public.

What is the history of IPOs?

IPOs have been taking place since the beginning of the stock market, when the Dutch conducted the first IPO by offering shares of the Dutch East India Company to the general public in 1602. Towards the end of the 1990s – the height of the dot-com boom – many startups rushed to list themselves on the stock market, leading to the dot-com bubble. After the 2008 recession, IPOs became more uncommon, only to increase again in 2010.

If a company’s private valuation hits $1 billion, they are considered a “unicorn.” When Facebook went public on May 15, 2012, its stock opened at $38 per share and raised $16 billion. Before Facebook (FB) held its IPO, it reported a net income of $1 billion in 2011. Other notable, more recent unicorn IPOs include Uber (UBER), Slack (WORK) and Pinterest (PINS).

Many stock exchanges hold a ceremony to celebrate a company’s initial public offering. At the New York Stock Exchange and London Stock Exchange, a company may be invited to ring the bell, signifying market open or close. At the Stock Exchange of Hong Kong, a company may be invited to strike the gong.

Why does a company IPO?

A company may issue an initial public offering for several reasons – to raise money for growth, to scale or to allow early shareholders to liquidate their shares. IPOs also generate publicity and boost reputation.

Alibaba (BABA) held an IPO on the New York Stock Exchange in 2014, even though it’s a foreign company. Its main reason for doing so could have been to boost its reputation with investors and position itself as real competitor to amazon.