I understand that the new companies raise money from the Stock Market through IPO. But how does the company use this money to invest in the business?. If the stocks are held by people (promoters and investors), how does it get converted into cash to buy assets like machinery, building etc?

1 Answer 1


When investors buy stock in an IPO, they give the company money in exchange for the stock. The company now has cash. It uses that cash to buy equipment, hire employees, etc.

When an investor buys stock on the stock market, you're normally not buying an IPO. You're buying stock from another investor. In that case the company doesn't get the money: the person who sold you the stock gets it. That's different.

  • For e.g. if I buy stock in an IPO, for $100, this $100 goes to the company as money and is that all the company gets initially? Does it mean that whatever the company gets through IPO, Is the only liquid money that the company can invest? If the value of the stock becomes $200, then how does the company get the additional money?
    – KurioZ7
    Apr 2, 2020 at 1:48
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    Basically, yes. If a company sells 100,000 shares for $10 each, then they get 100,000 times $10 equals $1,000,000. There's the technicality that companies often hire other companies that specialize in managing IPOs and they have to pay that company something, so they don't really get the full $1 million. But that's just like, if you hire a marketing firm to produce ads for you, then if you sell $1 million worth of merchandise some portion goes to the marketing company and you don't keep it all.
    – Jay
    Apr 2, 2020 at 3:58
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    RE price goes to $200: If XYZ Corporation sells a share of stock to investor Alice for $100, and some time later Alice sells that stock to investor Bob for $200, XYZ does not get any part of the $200. Alice gets the $200. It does not directly help a company if their stock goes up, because they don't get the money, the people who own the stock do. Just like, if you buy a house for $100,000, and some time later you sell it for $200,000, how much of that $200,000 goes to the construction company that built the house? None. They already got paid. You don't owe them any part of the resale price.
    – Jay
    Apr 2, 2020 at 4:02
  • @KurioZ7 To extend on the issue: The fact that the share prices go from $100 to $200 are the result of the "market" thinking that the company has a higher value than before. This usually will be the result of "making business".
    – glglgl
    Feb 2, 2021 at 13:58

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