How It Works
The proceeds from the sale of stockshares in an initial public offering provide the issuing company with capital. For this reason, many start-up companies issue IPOs because they're seeking a source of capital to fund growth.
IPO Basics: What is an IPO (Initial Public Offering) Definition
IPOs are introduced to the market by an underwritinginvestment bank, which aids the issuing company by soliciting potential investors. In addition, the underwriter helps the issuing company to settle on the price at which the stock should be offered to investors.
IPOs represent the first time an issuing company will financially benefit from the public sale of its stock. Following the IPO, shares trade between buyers and sellers on the open market, whereby the underlying company receives no compensation.