Capital Raising does take place while a company is listed on a Stock Exchange but it usually handled by Investment Banking firms and Stockbrokers. The Stock Exchange is not directly involved in the process but will allow the trading of the newly issued shares once the offering has closed.
Funds are raised as:
- Primary offering. Usually called an IPO. The first time a company offers it’s shares to the public. This is done in conjunction with a planned listing date on a stock exchange. Stock Exchanges impose an obligation on companies prior to listing that if they are to raise capital from the public they issue a Product Disclosure Statement or a Prospoectus. Companies that undertake an IPO use the services of an Investment Banking firm or Stockbroker acting in the capacity of an underwriter to help them correctly assess the value of their shares.
- Secondary offering. The issue of new stock or shares to the public by a company that has already had a primary offering or IPO.
If we look at one Stock Exchange, the Australian Stock Exchange (ASX) the figures are as follows for 2011.
Total volume of traded shares $1.34 trillion
Total primary offering $29.4 billion
Total secondary offering $33.7 billion
Total of both primary & secondary $63.1 billion
If we look further at these figures, of the $1.34 trillion transacted through the ASX, only $63 billion of it was for direct investment in to the entity raising capital. This represents a 4.7% share.
That means of the trillions of dollars flowing through the sharemarket only 4.7 percent of $63 billion actually went to hiring more people or growing a business or supporting innovation.
The figure of 4.7% is in marked contrast to capital raising platforms like ASSOB where 100% of the capital raised goes towards hiring more people or growing a business or supporting innovation.
When stocks and shares were first created, beginning with the Dutch East Indies Company, all of the invested funds went into the entity raising the capital. However as markets have become more and more sophisticated investors have focussed more on the secondary sale of shares rather than the primary investment, The figure of under 5% means that only a fraction of the money transacted is invested for productive purposes. The rest is for pure speculation.