?How Public Companies Raise Capital
In a standard fashion, public companies are able to raise capital through the sale of
their securities. This is one of the most important features of public companies, as
opposed to private companies; they can advertise their offerings (public offerings) and
attract investor capital. It is it very difficult to obtain large amounts of capital for
Raising capital, the classic scenario:
The stock of a public company is often traded on a stock exchange. The value or
"size" of a public company is called the market capitalization, often called "market
cap". This is figured by the multiplication of the outstanding shares by the price per
share. (Authorized, but not issued shares, do not count). As an example, let's say a
company with 10 million outstanding shares and a price per share of $5.00 would then
have a market cap of $50 million.
Trading volume can affect the price per share when selling (in a negative way) and
when buying (in a positive way). Thus, the number of trades in a given period of time,
commonly referred to as the "trading volume" is important when determining true
market value. The higher the volume, the more the market value of a given company
is reflected in its market capitalization.
Public companies can raise capital easier than private companies; they may use their
stock as compensation for corporate personnel, such as directors, officers, and
Other ways of raising capital:
Venture capitalists also provide funding for companies. However, the capital comes
with a string of conditions, to include seats on the board of directors. If you wish to
retain control of your company, this should be something to avoid.
Investment Bankers and broker/dealers also invest in promising companies. It works
as such: The company issues the bankers or dealers time-restricted stock at less than
market rates. The bankers and broker/dealers then provide the company with capital
while holding the issued stock for the agreed time period.
Needless to say, the experience and service of a competent securities attorney is much
in demand when public companies wish to raise capital. The finer nuances of raising
capital can be a confusing affair even for financially trained professionals, and even
more so for the lay person.
Frank roberson is an experienced financial consultant providing consultation and
advice on how a public company can raise capital. Please visit Mr. Roberson's website
for more information.