What role does the stock market play in the lifecycle of a company?



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Hi sir. I just watched the video lecture on introduction to investment banking. Your way of teaching is really awesome. And I have one doubt regarding this lecture.

I understand the life cycle of a company but really i don't understand the role stock market in this life cycle. And I don't have any basic idea on stock market.
could you please explain me about the role of stock market in easy way by taking example?
Thank you sir!

1 Answer(s)


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Hi Ramu,
Thanks for your kind words. Glad you like our teaching.

Company's generally go to the stock market when they want to raise huge sums of money - Rs. 100 crores or more. Hence the stock market is relevant to a company only in its later stages - after 4-7 years.

So lets assume you start a company today and some friends and family invest Rs. 10 lakhs in your company. With that money you can operate the company for maybe 10 months. After that you will go and meet a venture capital investor who will give you more money (maybe Rs. 15 crores) to operate your company for another 2-4 years. After that lets say you want to expand your company rapidly and you need Rs. 100 crores for that. It could be difficult to get Rs.100 crores from private investors. Hence you will list your company in the stock market and the public like me will invest Rs.100 crores in your company. Based on that a company has its stock price. This is the role of the stock market in a company's life cycle.

Does this answer your question ? Please let me know if you have any clarifications.

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