IPOs can be vitally important to businesses, enabling them to raise more capital and expand. Companies could use proceeds from an IPO for research and development investments, debt repayment or expanding into new markets.
During the 1990s, tech-focused IPOs captivated market sentiment and fuelled by the Dot Com bubble, yet an imminent economic crisis was on its way.
The Early Years
From the late 1700s forward, companies seeking to expand have relied on initial public offerings (IPOs) as a form of capital raising. Historians note that early IPOs often resembled theater premieres in terms of hype and expectations surrounding their future success.
The initial public offering process has evolved with technology and globalization since its advent in the 1990s. After the collapse of dot-com bubble in 2000, regulatory oversight increased substantially with renewed emphasis on sustainable business models and regulatory oversight measures.
Globalization has increased exponentially in the 21st century and created new markets for companies seeking to go public. Brazilian consumer and TMT companies Nu Holdings and Kakao Bank both listed on US exchanges in 2014 - likely continuing this trend due to convergence between finance and innovation. Furthermore, smaller microcap companies have seen an upsurge following passage of JOBS Act which reduces securities regulations for smaller firms.
The Industrial Revolution
In the 2000s, corporate governance and financial transparency came under increased scrutiny, prompting legislation such as Sarbanes-Oxley Act which set forth tougher rules affecting how companies approached going public.
After the collapse of the Dot Com bubble and 2008 economic crisis, investors became less eager to purchase shares in newly listed companies. But once markets recovered and tech giants such as social media platforms and ride sharing firms reached significant valuations, IPOs saw a dramatic upswing.
Publicly-trading your company offers it greater access to capital as well as enhanced brand value, while issuing shares allows early investors and employees to cash out once their lock-up periods have expired. Furthermore, companies listed on the stock market can borrow money more cost effectively, making IPOs an attractive choice for many looking to grow and scale.
The U.S. Securities and Exchange Commission
Initial steps taken when raising capital through an initial public offering (IPO) include filing a preliminary prospectus with the Securities and Exchange Commission (SEC), followed by steps by investment banks to market the offering and gauge investor demand, while setting an IPO price that is both low enough to encourage demand but high enough so investors can recoup their private investments fully.
Once an initial public offering (IPO) is priced, institutional and retail investors can purchase shares. The proceeds can then be used for operations. Underwriters usually consider factors like market dynamics and industry condition to establish an appropriate price point.
The Securities Exchange Commission is comprised of five commissioners appointed by the president and no more than three may belong to a single political party in order to promote nonpartisanship. Share prices tend to fluctuate dramatically during their initial trading days as investors adjust to newly listed stocks and prices are adjusted by investors accordingly.
The 1990s
IPO enthusiasm suffered during the 1990s. Market volatility and mild economic recession dampened investor enthusiasm, prompting several companies to postpone or delay their public offerings. Furthermore, tighter financial regulations due to high-profile corporate scandals and risky investments made the IPO process more complex and expensive.
As a result, there were few new IPOs and concerns that slow capital markets could damage innovation and economic growth. President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act in 2012 to encourage IPOs for young businesses.
The 2000s
Through most of the decade, initial public offerings (IPOs) remained relatively subdued, due to geopolitical tensions and general economic insecurity weighing down markets and IPOs. Two events would further dampen markets: Iraq's invasion of Kuwait and an international recession which spread around the world.
AT&T Wireless Group was the year's most successful initial public offering (IPO), raising $10.6 billion. This was also the first time ever that an organization offering mobile communication services had gone public.
After the 2008 financial crisis, IPO markets took a temporary hiatus as many companies either chose to remain private or seek large rounds of financing through private markets. This shift resulted in more companies opting to remain private or raise private markets rounds instead, which shifted attention toward technology firms with valuations over $1 billion (known as "unicorns"). While these unicorns may attract investors with larger payouts potential than previously established public listings could do; nonetheless a public listing still provides liquidity that helps expand businesses and attract talent.
The 2010s
Technology and globalization have become major forces driving initial public offerings (IPOs). Firms are building e-commerce platforms to enable customers to purchase goods and services from around the globe; others use IoT technologies to automate operations for better efficiency; these firms may seek liquidity to fund expansion or provide employees with stock options as rewards.
Companies are turning towards automation and digital transformation as means to boost productivity, reduce costs, and open new business opportunities. Finally, global supply chains enable businesses to reap economies of scale by working with partners across locations.
In 2024, several factors may impact IPO trends significantly. Tariffs and trade protectionism could increase costs for import-dependent companies and decrease profitability; regulatory reforms or the presidential election cycle could alter capital market conditions as well.