Where does the money go when a company sells equity?
When a company issues new shares to investors, the cash goes directly into the corporate bank account to fund business operations, whereas shares sold by founders in a secondary transaction put money into the founders' personal pockets instead. Preferred stock often commands a higher price per share than common stock because it carries special legal rights, such as liquidation preferences and guaranteed dividends, that protect investors if the company is sold or goes under.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
- 1working through hypothetical ownership and sale scenarios
- 2Reviewing IPO prospectuses and SEC filings
- 3Calculating yield to call instead of immediate conversion value
In their words
Unedited, most upvoted first, each linked to the thread it came from.
“I'm confused on the exact mechanics of how money is gained by selling stake in a business.”source ↗
“Any good reason for the much higher average price of the preferred?”source ↗
Where this came up
People with this problem also raised
- 2How should a new shop owner pay themselves?
- 2Can a non-profit donate a vehicle to itself?
- 6Funding my business out of my own pocket
- 2How do I find a trustworthy business partner and avoid split mistakes?
- 14How to start investing with very little money
- 2Why is it so hard to learn the accounting theory behind daily work?