Mon Sept 13

 Stock Market Info: Why companies go public.

Why a Company Issues Shares

Today's corporate giant likely had its start as a small private entity launched by a visionary founder a few decades ago. Think of Jack Ma incubating Alibaba Group Holding Limited (BABA) from his apartment in Hangzhou, China, in 1999, or Mark Zuckerberg founding the earliest version of Facebook, Inc. (FB) from his Harvard University dorm room in 2004. Technology giants like these have become among the biggest companies in the world within a couple of decades.

However, growing at such a frenetic pace requires access to a massive amount of capital. In order to make the transition from an idea germinating in an entrepreneur's brain to an operating company, they need to lease an office or factory, hire employees, buy equipment and put in place a sales and distribution network, among other things. These resources require significant amounts of capital, depending on the scale and scope of the business startup.

Raising Capital

A startup can raise such capital either by selling shares (equity financing) or borrowing money (debt financing). Debt financing can be a problem for a startup because it may have few assets to pledge for a loan—especially in sectors such as technology where a firm has few tangible assets—plus the interest on the loan would impose a financial burden in the early days, when the company may have no revenues or earnings.

Equity financing, therefore, is the preferred route for most startups that need capital. The entrepreneur may initially source funds from personal savings, as well as friends and family, to get the business off the ground. As the business expands and capital requirements become more substantial, the entrepreneur may turn to angel investors and venture capital firms.krispy kreme

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