I’ve seen a common fallacy regarding Facebook and other IPOs. It’s “All the money goes to the corporation, to help improve its business.”
At one time, that was true. That is no longer true.
In most modern IPOs, there are *TWO* sources of shares. Some of the IPO shares are newly issued shares. For those shares, the revenue goes to the corporation’s books.
However, a lot of shares for the IPO are pre-IPO shareholders cashing out. For those shares, the money does not go to the corporation. It goes to the pre-IPO shareholders who sold.
However, a high share price does indirectly benefit the corporation. A high share price makes it easier to raise capital, either by selling more shares or by selling bonds or convertible bonds.
A high share price also benefits insiders. They can cash out their option and equity grants at favorable prices. In fact, many corporations have “share repurchase plans” at the same time that the CEO is cashing out his options!
That is a common fallacy. When there is an IPO, the money raised does not go 100% to the corporation. Some of the money goes to pre-IPO shareholders. For Facebook and other “hot IPOs”, a substantial number of shares were sold by pre-IPO shareholders, rather than being new shares with the capital going to the business.
I would say that common IPO fallacy is that it people believe that by buying shares they buy ownership in the company. Nothing can be further from the truth, as with almost any IPO the controlling package(i.e. that enables to appoint directors) never leaves hands of the owners. IPO=Scam
That’s one of my arguments against investing in the stock market. You can’t prevent the CEO and controlling shareholders from lining their pockets at the expense of small shareholders.
Some corporations, such as Facebook, Google, Viacom, and Comcast have incorporation rules that give insiders special supervoting shares. Even without such rules, insiders have a lot of influence, and a small shareholder has no influence.