What an IPO?

y does it need a investment bank? n y do some owners think its a way out instead of a way in.

Inital Public Offering - when a company issues public stock for the first time

They need an investment bank to underwrite the process/lend credibility to the company, find investors to buy the initial lot of stock (most IPOs are not as sought after as Google for example and investors can be hard to find) and to determine the intial price of the stock. There's also lots of legal work involved and unless the company issuing stock is an investment bank itself it has no expertise in this area.

Those who started the company see the IPO as a 'way out' in the sense that they can finally realize a return on their investment, especially if the company is still not profitable. If venture capitalists intially funded the startup they may have some preffered stock in the company which they liquidate into public stock upon IPO. The public offering now gives them a secondary market making it much easier for their stock to be sold and to appreciate.

"The vast majority of VC investments are structured as preferred stock. It's called preferred because it "sits in front of" the common stock (or is "preferred to the common") where common stock is the plain vanilla stock that a company has. Typically in VC investments, founders receive common stock, employees receive either common stock or options to purchase common stock, and the VCs receive preferred stock. This preferred stock has a series of special rights which almost always include a liquidation preference. The liquidation preference means that the VC will have the option - in a liquidity event - of either receiving their liquidation preference as their return or converting into common stock and receiving their percentage ownership as their return."

http://www.feld.com/blog/archives/2004/0...

Initial public offering (IPO), also referred to simply as a "public offering," is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

IPO stands for initial public offering. It's when a company starts selling shares publicly on a stock market.

The need for an investment bank is primarily for oversight purposes, to make sure the transactions are properly documented and such. Investment banks also provide a lot of help to the company owners in estimating how much the company is worth, and as such how much to start the stock price at.

As for seeing it as a way out, there can be a few reasons for this. Once you go public, you lose a lot of the control and freedom you once had, since you now have to answer to the shareholders, and some people don't really enjoy that aspect but are forced to go public to get the money necessary to grow the company. Other people actually enjoy building new companies to sell them and turn a profit, and this is a good way of doing that.