What's the best way to explain how a company makes money when going public?

Question

When a company is looking to raise capital in a stock offering, how can I explain to someone how the company actually makes money in this process?

Answer 1

The same way it made money before the offering.
;-)

Actually, in the initial public offering (IPO) of their stock, the company receives the net proceeds of the stock it sells. That is, the remainder after the lawyers and investment houses get their cut.

This applies to all stock sold directly by the issuing company.


Darth Serious

Answer 2

The company owners are selling voting rights to outsiders, along with rights to a portion of the company's future profits.....in exchange for cash.