Evan Carmichael explains why company shares stay available after an IPO. Founders start with 100% of shares, sell portions to investors and the public, then existing shares trade on secondary markets like NASDAQ and NYSE based on supply and demand. No new shares are created regularly; they're resold like used cars.
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Why are shares still available? So I got a question from one of my YouTube viewers, love you guys, Hossein, who wrote in to say, "Dear Evan, thank you for all the help. I appreciate if you could include the answer to this question as well. This may look stupid, but can you elaborate how come company shares are still available after all these years of selling on the NASDAQ, New York Stock Exchange? Many of the shares are already acquired by the owners, founders, CEOs, and so on." and they've been around for people to buy for so long, how come there are still shares available? So this might be a basic question, but it's not a stupid question. Hey, if you have questions, you got to get answers. You want to be able to make decisions, you need answers to your question, so don't be afraid to ask them, okay? To answer this question, let me work through how companies typically raise money, and hopefully you'll get the answer by the end of the video. At the beginning, when a company started, it started by one person or a couple people. You guys own all the shares, right? If it's one founder, you own 100% of the shares. If you're in a partnership, partnership, you may own 50% of the shares or 33 1/3 depending on how you split it up with your partners. As you grow, a lot of these companies look for funding. You look for financing. And typically how you start is you go to an angel investor. So if you own 100% of your company, you go to an angel investor, say you give up 10% of your business. Okay, you give up 10% of your business, you are trading shares in your company for money. So they're paying you, let's say $100,000, and you give up 10% of the shares. So now they own those shares, you own 90, they own 10%. As you keep growing, typically you go from angel investor to venture capitalist. A venture capitalist is not one person but a group of angel investors who've pooled their money together, or a company who wants to fund new businesses and make some money doing it. And it's the same idea though as an angel investor. You are selling a part of your company to another company now who will own a piece of your— they'll own a piece of your company, and in return they're giving you money. A lot of times the goal for a VC, for venture capitalists, is to take you public. And going public, selling your shares on the New York Stock Exchange, on the NASDAQ, is very similar to selling shares to an angel investor or to a venture capitalist, okay? You are giving up a percentage of your business, but not to one person, not to a company, but to hundreds of thousands or millions of people. Any individual investor can go and buy your share. If your share is $100, I could put $100 into your company and I own one share of your business. So if you go public, say you give up half of your company, okay, you're going public, you still own half your shares, the other half are owned by the masses. The reason why the shares are still available is that people are buying and selling them. Okay, you may still hold on to all your shares, the angel may still hold on to all the shares, the VC— VC typically wants to get out, so they'll be selling their shares. And there's all these people who own the shares but there's people who want to buy it too. And so the stock price is determined by people making that exchange. They want to buy the shares and you want to sell the shares. And it may not be you specifically in the business, but any shareholder, right? If I buy Google and it doubles in price, I might be thinking, hey, I want to get out of Google, I want to make some cash. So I'm now willing to sell my shares and other people are willing to buy it. So there are no new shares being made, right? There's no new shares. You're not saying, hey, I'm adding a million new shares to the market. That sometimes does happen, but it's, it's rare. There's no new shares that we're creating here. It's just the ones that are already outstanding, the ones that are already out there, are being bought and sold. So let me give you another example. Say you wanted to buy, say you wanted to buy a 2005 Honda Civic, okay? You wanted to buy an '05 Honda Civic for whatever reason. There are no new '05 Honda Civics being made. There are none that are new ones being made because it's an '05 Honda Civic. But you can go and buy one because somebody who has that '05 Honda Civic is willing to sell it. You have to come to a price. You know, if you offer them $100, they may not take it. You offer them $5,000, maybe they'll take it, right? So you have to set the price, but there's somebody willing to sell it. So the same thing happens with your shares, with the stock prices, right? There are no new shares being made, but the ones that are out there are being bought and sold depending on what the price is. Now, in the rare circumstances, some companies will also buy back their stocks so there's fewer shares on the market, or in some extreme cases, they'll go private. So an example is Mary Kay Ash. She had Mary Kay Cosmetics. She launched her company, she grew it to big success, she raised public money, she took it public, she put it on the stock exchange, she got a boatload of cash from it, she used it to expand her business. She didn't like the direction that it was going, having to appease shareholders, so she bought back all the shares back from them, and then she owned the whole company again. And then in that case, there are no more shares because she owns them all and she doesn't want to give them up. But usually there's a certain percentage of the shares that are owned by the general public, owned by individual investors, and they're always willing to sell it if it's at the right price. And so that's what the stock market facilitates, is people buying and selling shares of existing companies when they can agree on the price. So hopefully that helped answer your question. Not a stupid question. If you have more, let me know what they are. I'll do my best to answer them for you. If you guys like this video, thumbs up below. Let me know what you think. Leave a comment underneath. Ask me a question, I'll make a video reply. And you want to see more videos like this, click on my face, subscribe to the channel. Thank you so much. I'll see you soon.
