3. Why and how do companies list, and what is an IPO?

Zerodha Varsity - 3. Why and how do companies list, and what is an IPO? - Notes

1. Summary

This video from Zerodha Varsity explains the process of how companies get listed on stock exchanges, focusing on the Initial Public Offering (IPO). It outlines the lifecycle of a company, from its inception and fundraising stages (angel investors, venture capitalists) to the IPO and beyond. The video uses examples to illustrate why companies list on stock exchanges, the IPO process, and what happens after a company goes public.

2. Key Takeaways

* **IPO as a Fundraising Tool:** Companies use IPOs to raise capital from the public.

* **Company Lifecycle:** The video covers the journey from a company's establishment to listing on a stock exchange.

* **IPO Process:** The IPO process involves several steps, including regulatory filings, marketing, and the book-building process.

* **Primary vs. Secondary Market:** The video differentiates between the primary market (IPO) and the secondary market (where stocks are traded after listing).

3. Detailed Notes

**3.1 Introduction: Why Companies List**

* Thousands of companies are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

* The video explores how these companies get listed.

* Example: A company's growth over time shows how a successful company grows.

**3.2 Company Lifecycle and Initial Funding**

* **Early Stages:** Companies start with initial funding from:

* Friends and family

* High-Net-Worth Individuals (HNIs)

* **Growth and Need for More Funds**: As a company grows, it requires more capital.

* **Funding Rounds**: Companies undergo multiple rounds of funding.

**3.3 The Role of an IPO**

* **Raising Capital:** IPOs are a way for companies to raise a significant amount of money from the public.

* **Definition:** An IPO is when a private company offers shares to the public for the first time.

* **Benefits:** IPOs allow the public to invest in a company.

**3.4 IPO Process: Detailed Breakdown**

* **Pre-IPO Stage:**

* A company decides to go public.

* They register with regulatory bodies.

* They prepare a registration statement and documents.

* **Red Herring Prospectus:**

* Contains information about the company's:

* Management

* Industry

* Competitive advantages

* Financials

* **Marketing & Roadshows:**

* Companies conduct roadshows and other marketing activities to increase awareness about the company.

* **Price Discovery:**

* The company sets a price range.

* **Book Building Process:**

* Potential investors bid on shares.

* This helps determine the final price.

* **Listing:**

* Once the IPO is complete, the company gets listed on the stock exchange.

**3.5 Post-IPO: Trading in the Secondary Market**

* **Secondary Market Trading:** After listing, shares are traded on the stock exchange.

* **Price Fluctuations:** The stock price moves based on supply and demand in the market.

* **Primary vs. Secondary Markets:** The IPO is the primary market. The continuous trading of shares after the IPO occurs in the secondary market.

* **Next video**: Will discuss the reason behind the movement of the stock prices.