Many of us have invested in IPO stocks, and when a company announces an Initial Public Offering, it is still an exciting endeavour. But when was the first ever IPO and how did it begin? In this article, we will take a look at the history of the IPO and how the practice came to be.
The beginning of the IPO
IPOs date back to 1602, and the very first recorded instance was to raise funds. Back then, the Dutch East India Company, which was the biggest commercial enterprise in the world in the 17th century, hosted the first publicly recorded IPO when they invited every Netherlands resident to buy shares. Their goal was to raise funds for them to trade in spices and other commodities.
Fast forward to the 1790s, one of the biggest IPOs took place in the United States. It was that of the Bank of the United States, which invited private investors and the federal government to chip in funds and buy subscriptions instead of shares. These subscriptions were essentially down payments on the stocks itself, and they were sold almost immediately. A secondary market reselling these subscriptions developed due to the overwhelming popularity of the first one, and how well the IPO was received.
IPOs over the decades
Over the decades, many big IPOs have debuted, and the phenomenon of the IPO has also shaped the global economy. Companies that gain traction could go public and sell their shares in order to raise funds for further development, and as the stock market becomes more and more populated, it has made stock trading a very lucrative and exciting endeavour for all involved.
The top 3 largest IPOs in the world in the past decades were Saudi Aramco, Alibaba, and SoftBank, in this order.
Saudi Aramco is a Saudi Arabian energy company, and it is one of the world’s largest. It exports, produces, and transports crude oil and natural gas, and its IPO took place in December 2019. The company’s shares were sold on the Saudi Stock Exchange, and it managed to raise $29.4 billion – the largest IPO in history.
Alibaba is a name that many are familiar with, and it is a technology company that was founded in China. Alibaba held its IPO on the NYSE in September 2014 and raised a whopping $21.8 billion, making it the largest IPO in history before Saudi Aramco’s listing came along five years later. The goal of the IPO was for the company to expand into global markets beyond China, and it has certainly succeeded.
SoftBank is a communication services company that was founded in 1986 in Tokyo, Japan. These days, it is a mainstay around the country and offers mobile and fixed-line communication services as well as ISP services. Its IPO took place in December 2018 and raised $21.3 billion on the Tokyo Stock Exchange, making it the third largest IPO in the world in history.
Today, many see IPOs as synonymous with tech and media. While it is true that in recent years, more and more tech and media companies have publicly sold their shares for the first time and raised a remarkable amount of funds, IPOs are not exclusive to Silicon Valley. Many companies across industries go public every day with success.
Today’s IPO process normally starts with creating a proposal to be presented to a stock commission, and the proposal includes the company’s background and services, and the type of stock they would like to issue, its offering price, and the number of shares the company would like to list for sale.
Depending on the jurisdiction, it could become more complex and take months for the whole process to take place. This is because there is a lot of documentation and presentation to be done, and companies usually have to hire legal teams and underwriters to help them.
The benefits and risks of investing in IPO stocks
Stock IPO trading has always been one of the most popular investment strategies as it can be exciting to watch companies grow and invest in them from the ground up. It is also a great way to buy stocks when they are at a relatively low share price, so that if they boom, traders will be able to profit hugely.
However, as with any investment strategy, some risks are associated with investing in IPO stocks. As mentioned, there is no guarantee that the stock will perform well and the company may lose money, fall out of the public’s favour, or go bankrupt. Therefore, traders should invest with caution and only buy IPO stocks after familiarising themselves with the company and the market.