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principles of Finance a la shmoop. pros and cons of IPOs, the secondary and

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the primary market. ah the IPO. investing holy grail. well an IPO is an initial

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public offering. in it the company agrees to conform to higher standards of [white board definitions]

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operation mainly in the form of reporting and accounting compliance and

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in return the company gets to sell stock to the public and list its shares on an

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exchange like Nasdaq or the American Stock Exchange or the NYSC you know just

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like the big boys. why would the sauce company want to do that well two reasons.

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really one is that it gives the original investors Artie Bernie Reid a purple key [man gives power point]

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the opportunity to cash out or get liquid. liquidity vocab word time -refers

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to investors easy and quick means with which to turn their equity shares

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into the cold hard stuff or cash. like if you're very liquid you hold a

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lot of cash. mr. market the stock market puts a valuation on the company in the

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form of pricing its shares- it's a valuation that is typically

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higher than professional private equity or venture investors would give it, and

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well with that IPO move come the burdens of being a public company- more scrutiny

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more stringent reporting requirements more bureaucrats more filings more [power point presentation continues]

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accountability, just well more. well all of these are a cost to any public

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company. and the big debate revolves around whether the positives outweigh

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the negatives ,right because being public carries a lot of burden to it. there's a

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lot of spirited debate within the sauce company around the question why go [scale pictured]

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public at all? well Bernie notes that he likes having the freedom to experiment

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and spend money trying new applications for the sauce. could it be a know a hair

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conditioner ?or what about a pet laxative? and

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don't ask how he came up with that idea. well he's talking about branching out [cat leaves litter box]

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into scented candles as well. it seems that the early trials have been a huge

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hit in Thailand. well if the sauce company is public he worries that he

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will not have the ability to make mistakes experimenting because well the

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company will be focused solely on hitting their quarterly profitability

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numbers, so that Wall Street will be happy and they'll carry a high stock [smiling man in a suit]

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price. well Artie ruefully points out that the venture guys will sell them out

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dumping their shares just in time for the sauce company to miss a quarter by a

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few pennies a share and then well they watch their stock price get cut in half

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overnight. so the founders really don't want to take the company public. the [chart shown]

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debate gets heated enough that Artyom Bertina find their own legal counsel to

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outline their choices. they wanted to use uncle hy but well he realized this was

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way out of his league. so he found them a lawyer from the August firm Dewey

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Cheatham and Howe. well Hine Goldberg a partner at the firm points out that [lawyer firm shown]

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since the company doesn't need the money well they already have 40 million

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dollars in cash on the books no debt and a very high free cash flow coming into

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the company each month ,well the only reason for doing an IPO would be to let

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others sell stock. high notes the huge success of off marketplaces that have [man smiles holding stock]

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emerged through which companies like Facebook and Google and Twitter and a

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bunch of other high-growth Silicon Valley companies have transacted in the

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billions of dollars. they could simply list their securities on a second market

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or the actual company called the second market and hope for the best!

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well unfortunately the VCS do not believe that second market marketplaces

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alone will give them the liquidity they need to sell so many shares. so the VCS [logo of second market shown]

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are determined to go public and really they're kind of miffed because that was

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the handshake they made when they invested in the first place. that the

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company would go public if it could. well it appears that they have a stalemate

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until mr. Wu weighs in .he's at a crossroads in his career. because he's

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done such a spectacular job at running the sauce company while he's now being [man answers phone]

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highly recruited to come in and run huge public companies as CEO. well he only has

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six more months to vest in his stock options that were granted originally,

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and if the sauce company decides not to go public, well he can just quietly

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finish best and give notice in a few months and we'll move on to his next gig.

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he'll profit handsomely from his options which he bought out and owns the shares [three men play musical instruments]

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of now, and with his vesting he'll have converted them entirely into the common

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stock that he bought out. got it? he can surely find buyers for his small stake

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on the second market in well just move on. but if mr. Wu goes well it's a huge

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headache for everyone. arty and Bernina have grown to respect

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and like him as has the board and the other thousand employees now inside the

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company but most importantly so has Bubbie. [men frown]

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she got to know mr. Wu's mother who was about her age and while they had been

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experimenting with a blend of Eastern European cooking and just eastern

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cooking kreplach dim sum which has fast become Bobby's favorite dish. well since

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the heart and soul the company is bubbie anyway when she speaks no the rest of [women smile sitting at a table]

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the room gets quiet fast, and she wants Wu to stay so she asked him to describe

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his vision for the future of the company Wu then details his longer-term strategy

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which is to take the company public and then acquire or roll up other smaller

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brands contiguous to the sauce arena. salad dressings snack foods other

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cooking elixirs all branded under this new hot brand the sauce to buyers who [salad dressing and vegetable oil shown]

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pray to the goddess Bubbe who's smiling face at this point from seventeen while

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going on 20 years ago actually adorns every bottle. bubbie loves this idea! so

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it was said so it shall be done. Aarti and Bernie stare at their laps as

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they vote okay quietly when the board resolution is passed to go public. yep [young men frown]

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what a good couple of minions.

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