S1 E3 : WHAT IS AN IPO? HOW A COMPANY ENTERS THE STOCK MARKET
In Episode 2, you learned that companies divide themselves into small parts called shares to raise money.
But here’s a new question:
Where do those shares come from in the first place?
And how do they suddenly appear in the stock market?
Answer: Through something called an IPO.
Let’s break it down.
💼 Imagine This:
You’ve built a successful company — let’s say it’s a mobile app for ordering tiffins.
Things are going well.
- You’ve got thousands of users
- Great feedback
- A small but solid team
Now, you want to expand to more cities and hire more people.
You need a lot of money — more than what a bank loan can cover.
So you think:
“Why not make my company public and let people invest in it?”
That’s when you decide to launch an IPO.
📢 So What is an IPO?
🔍 IPO = Initial Public Offering
Let’s make it super simple:
📍 An IPO is when a private company sells its shares to the public for the first time.
Before an IPO:
- The company is private
- Only founders, early investors, or a few people own it
After an IPO:
- The company becomes public
- Anyone — including you — can buy its shares in the stock market
🏢 Real Life Example: Zomato
Zomato was once a private company.
Then, in July 2021, it launched its IPO.
- It offered shares to the public for the first time
- The price was around ₹76 per share
- Lakhs of people applied to buy those shares
After the IPO:
- Zomato got thousands of crores in funding
- The public got to own a part of Zomato
Now, Zomato trades on the NSE and BSE, just like Tata, Reliance, etc.
🧁 Simple Analogy: Cake for the Public
You’ve been baking cakes at home and selling them to close friends.
Now you want to open a bakery.
So you announce:
“I’m selling 100 small pieces of my cake business. Anyone can buy a piece.”
That moment — when you offer it to everyone for the first time — is your IPO.
People buy the pieces (shares), and you get the money to grow.
Same logic. Just replace:
- Cake = Business
- Pieces = Shares
- Announcement = IPO
- Customers = Investors
📈 What Happens After IPO?
Once the IPO is done:
- The company’s shares get listed on the stock exchange (like NSE or BSE)
- After that, people can buy/sell them freely every day
The stock becomes part of the open market — just like Reliance, HDFC, or Infosys.
🧠 Recap in 6 Simple Points
✅ IPO = When a private company offers shares to the public for the first time
✅ After IPO, the company becomes public
✅ Shares start trading on NSE/BSE
✅ Anyone (including you) can buy those shares
✅ Company uses the money to grow
✅ Examples: Zomato, Paytm, Nykaa, LIC — all launched IPOs
💬 Bonus Tip: Not Every Company Has an IPO
Some companies never go public.
They stay private forever and raise money in other ways.
But for many businesses, an IPO is the big "entry ticket" to the stock market.