Stocks 101
How companies raise capital: IPOs and follow-ons
4 min
Shares exist because companies need money to grow, and selling ownership is one way to raise it without taking on debt.
The IPO — going public
When a private company first sells shares to the general public, that event is the IPO (Initial Public Offering; in Brazil, oferta pública inicial). The company works with banks to set a price, sells a batch of new shares to investors, and in return receives cash it can use to expand, pay down debt or let early owners cash out.
After the IPO the company is listed — its shares trade freely on an exchange, and anyone can buy them.
The primary vs the secondary market
This distinction trips up many beginners:
- Primary market — the company itself sells new shares and receives the money (the IPO, and follow-ons below).
- Secondary market — investors trade existing shares with each other. The company gets nothing here; the cash moves between buyer and seller. The vast majority of daily trading is secondary.
Follow-on offerings
A listed company can raise more money later by issuing additional shares — a follow-on (in Brazil, follow-on or oferta subsequente). This brings in fresh capital but also dilutes existing shareholders: the same pie is now cut into more slices, so each old share represents a slightly smaller fraction of the company.
Understanding where the money actually goes — to the company, or just between traders — is the foundation for everything that follows.
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