For decades now, Arun’s family has been serving the tastiest vadapav in pune. Arun convinces his family to take their vadapav joint pan india but needs 1 Crore for expansion. Arun plans to raise this amount directly via investors He invests 50 lakhs from his own pocket and Remaining 50 lakhs are raised by giving up 50% equity of the company. This 50% equity is distributed as 50,000 shares priced at Rs 100/- each.
With 1 crore successfully raised, Arun opens 15 centres across India in 5 years. and now his company has a valuation of Rs 15 Cr. Each investor who had bought shares from Arun multiplied their investments by 15 times.
In essence, shares mean part ownership of a company. In practice however, Arun would have to raise funds via IPO in the primary markets. Subsequently, the shares are traded between institutional and individual investors in secondary markets like NSE & BSE. Stock markets allows companies to raise money on one hand and lets investors participate in financial growth of the companies, in turn making money.
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