Who gets the money in an IPO?

A headline says an initial public offering, or IPO, was worth $12 million. How much did the company itself raise? An IPO is a company’s first public offering of shares. It can include shares the company creates and shares that existing investors choose to sell. The answer depends on which shares are being sold.

One offering, two sellers

Imagine a U.S. company sells one million new shares at $10 each. The sale produces $10 million in gross proceeds for the company. Investor.gov calls the market for newly issued securities the primary market.

Suppose existing shareholders also sell 200,000 shares in the same offering at $10 each. They receive $2 million in gross proceeds. Put the two sales together and the offering totals $12 million, of which $10 million goes to the company before costs.

Gross proceeds are the amount before deductions. The amount a seller keeps after the applicable fees and expenses is its net proceeds. The figures here are invented to show where the money goes.

Who gets paid when the shares trade later?

Say one investor later sells 100 of those shares to another for $12 apiece. The trade is worth $1,200 before costs, and the payment goes to the investor who sold the shares. The company’s earlier proceeds stay the same. The SEC calls trading in existing securities between investors the secondary market.

Where to look in a U.S. prospectus

The prospectus describes the company and the terms of the offering. The SEC’s IPO bulletin points readers to the cover for shares offered by selling shareholders and to the Use of Proceeds section for what the company plans to do with the money it raises.

• Check how many shares the company is selling and how many come from existing holders.
• Compare gross and net proceeds, and check whose proceeds the figure describes.
• Look at Use of Proceeds for the company’s plans for its share of the money.
• Check whether a quoted price is from the offering or from a later market trade.