Series A Financing

Finance a la shmoop what does it mean to go public and to be

clear this is not about going in public that sort of thing can give you 30 days [Man urinating in public and officer arrests him]

in the county jail this is about taking your company public and pretty much all

companies start out as private, well they have a small handful of little investors [seven dwarves bringing bags of money to poisonapple.com]

they don't need tons of capital to get going and they're not really subject to

deep complex federal laws and regulations but companies grow up and typically have

their sights set on larger markets more complex and expensive products and

broader distribution power and for most companies that requires raising outside [Man holding up a share from a cart]

capital big capital additionally most early investors want to be able to sell

at least some of their shares likely at a huge profit and have what's called

liquidity i.e turning their private difficult to sell shares into easy to

sell liquid shares in a public company meaning that if they want to sell some [Man on cellphone outside Morgan Stanley building]

shares all they have to do is call Schwab or Fdelity or Morgan Stanley or

whoever and yell sell Mortimer sell into the phone which is really weird anytime

[Man yelling sell Mortimer to another man on a cellphone] the guy's name isn't Mortimer but you get the idea so when a company goes

public it means that they have agreed to follow federal laws and regulations

things like adhering to standard accounting practices called GAAP they

agree to file financial reports in a standard format that conforms to the way

in which everyone else files they agree to have a board of directors and so on [woman using a sewing machine]

so yeah there's a downside too a private company sometimes dilutes itself by

printing more shares that they can sell to the public like suppose organic

muffin group Inc has a total of 80 million shares and it's totally private [Man eating muffins in Organic Muffin Group Inc]

well the company decides for whatever reason it wants to go public and it'll

sell twenty million shares to new investors you know Ma, Pa Kettle, Joe [Company selling shares to new investors]

Sixpack err Moisha Cardiologist yeah well once the company has buyers for those 20

million shares it begins to trade publicly now having sold 20 million

shares that err say 15 bucks a share so OMG oops didn't think that one

through now the company has a hundred million shares total outstanding and

just raised 300 million dollars in cash - well the total value of the company is [total value of company on chalkboard]

a hundred million shares times 15 bucks or 1.5 billion dollars but now it's

public so it shares our liquidly traded ie anyone can now buy shares of the [dog running from building with a bag of money]

thing the early investors and founders can sell their shares after what's

usually a six month the cooling period the moral of story going public can be a [Men sat waiting in a 6 month cooling period area]

good thing for everyone involved both the company its commission taking

bankers and all of that companies investors going in public however is [Company, Banker and Investor all smiling]

only good for the guy with a cell phone camera and a YouTube account