How Does a company make money through its IPO?

[Yi]

I understand the basics of Finance but I always wondered how does a company make money during its IPO. I am curious particularly about Facebook. It is filling for an estimated 5 billion IPO and probably a 75-100b Market valuation. I know that the company sells the shares to make the money but where exactly does that 5 billion come from? And why does it go to them and not the underwriters? I know for example Morgan Stanley is selling the stock but where is the $5 billion coming from? If Facebook sells the shares, should they not get $100 billion dollars and not 5?

[John B]

The money comes from the investors that buy the shares initially. The underwriters don't own the shares, they just sell them.

Finally, in an IPO, the company does not sell all of its shares. Most of the shares go to the founders, employees, and early investors, or are just held by the company. If Facebook sells only 10% of its shares and they sell for $10 billion, then in theory the company is worth $100 billion because the shares that were not sold are worth the same as the shares that were sold.