My doubt is: Before going for the IPO, the company had some shareholders (eg. Initial investors, Employees, etc.) What happens to those shares? Do they get diluted?
If not, is the company issuing new shares?
And if the company is issuing new shares in the IPO Market, wouldn’t that mean that price/share will be less as Company Valuation is fixed for that time, i.e. the equation:
Company Valuation = Number Of Shares * Price/Share
So, if number of shares is going up, price/share should come down, as Company Valuation is constant.
So, it would men that the price/share before IPO is higher than in the IPO Market?
If company is issuing new shares, all existing shareholders get diluted
Or existing shareholder(s) are selling their shares. In that case there is no dilution, existing shareholders get replaced by new shareholders.
OR it can be combination of two
No this is not required. Company valuation is never constant. It can change every day, or every minute
Not sure where you got this from. But no there are no such fix physics rules in stock market
Share price and company valuation in short term are purely dependent on demand and supply. During IPO there is generally lot of hype and lot more buyers then sellers, so shares end up going higher. (which is happening in most of the IPOs these days due to investor frenzy)
It can also happen that no one is interested in buying those shares (like PayTM ipo) in that case share prices can drop too.
So both outcomes are possible depending on market sentiments and demand
