Existing shareholders get the first chance to buy new shares, usually at a discount, to maintain their ownership percentage.
$$R = P \times N$$
The total number of outstanding shares increases. This dilutes the ownership percentage and Earnings Per Share (EPS) of existing investors. 2. Non-Dilutive SEOs (Secondary Offerings) seasoned equity offering
While an IPO introduces a company to the public markets for the first time, an SEO allows an already-listed company to tap into equity markets again to raise fresh capital or allow existing insiders to liquidate their holdings. 🔎 Understanding the Two Main Types of SEOs Existing shareholders get the first chance to buy
⚠️ In a primary offering , new shares are created (dilutes you). In a secondary offering , existing shareholders sell their shares (no dilution, but lots of selling pressure). In a secondary offering , existing shareholders sell
In 2021, GameStop filed for a shelf offering during the short squeeze. They sold shares at absurd prices, raising $1.7B – and saved themselves from bankruptcy.
Imagine a company’s IPO is its “Series Premiere.” The founders ring the bell, the stock pops, and everyone celebrates. But fast-forward two years. The company needs cash for a massive new project. They can’t just print money (well, they aren’t the Fed). So they do the financial equivalent of a hit band releasing a “Greatest Hits” album: They sell more shares to the public.