how many shares does a company usually go public with?
Shakira asks:
I have the chance to buy some pre-ipo shares in a company that is planning to go public in about 2 years. There are 500 mil shares in the company and it seems like a high number of shares to have offered before event going public. Any thoughts, advice or opinions?
I have the chance to buy some pre-ipo shares in a company that is planning to go public in about 2 years. There are 500 mil shares in the company and it seems like a high number of shares to have offered before event going public. Any thoughts, advice or opinions?
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Do not worry about the number of shares. You need to worry about what they are selling them for. After all, whether they offer 500 million shares at $1/share or 1 million shares at $500/share, it is exactly the same.
Whether you buy into the ipo or not depends on what you think the company is worth. An IPO is a way for the public to determine what the company is worth (because it is the demand for shares that will drive the price up or down). Typically a company planning on going public will outsource the valuation process (i.e. determining how many shares should be offered and at what price) to an Investment Banking firm.
If share price goes up after IPO that is a good sign the I-Bank under valued the company, and if share price drops after IPO the I-Bank likely overvalued the company.
The value of the company goes up when it sells shares, because it has an inflow of money.
In some states, the corporation pays state taxes based on the number of authorized shares multiplied times the share price (not the issued shares). So it can become very complex.
If the company sells 100,000,000 shares at $10 per share, it now has $1 billion, thus, the value of the company has grown.