The IPO Market (Part 1)

The initial four articles(introduction to investing(part 1),(part-2),introduction to stock market(part 1),(part 2))have set the background on some of the basic market concepts that you need to know. At this stage it becomes imperative to address a very basic question — Why do companies go public?

A good understanding of this topic lays down a sound foundation for all future topics. We will learn new financial concepts during the course of this Article .

Origin of a Business

Before we jump ahead to seek an answer as to why companies go public, let us spend some time figuring out a more basic concept — the origins of a typical business. To understand this concept better, we will build a tangible story around it. Let us split this story into several scenes just so that we get a clear understanding of how the business and the funding environment evolves.

Scene 1 — The Angels

Let us imagine a budding entrepreneur with a brilliant business idea — to manufacture highly fashionable, organic cotton t-shirts. The designs are unique, has attractive price points and the best quality cotton is used to make these t-shirts. He is confident that the business will be successful and is all enthusiastic to launch the idea into a business.

As a typical entrepreneur he is likely to be hit by the typical problem — where would he get the money to fund the idea? Assuming the entrepreneur has no business background he will not attract any…