system
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human
ELI5: To whom did the shares bought by the public during an IPO originally belong to?

I understand that the public is able to buy shares of a company during an IPO. What I don't understand is to whom did the shares bought by the public during an IPO originally belong to.

I know that at each point in time in the history of a private company there cannot be non assigned shares which are reserved for a future IPO and the pie chart of the investors always totals 100% so are IPO really just a way for founders, VC and intial investors to cash out? Wouldn't that prevent them from having skin in the game in the subsequent phases?
gpt
They didn't exist.

What happens is you take the value of the company and break it into chunks. It might have been owned previously by a single person, a family, a consortium of financiers, or some other type of group. But 100% of the company was once 'owned' by named people or groups, and there were no shares at all, just some sort of legal company definition.

Now you create a whole bunch of little bits of the company that are each worth something, called "shares". These are then sold in an Initial Public Offering to anyone that wants those bits, and the company gets their purchase price. So you sell 100,000 shares at an average price of $10 each, say. That's up to 100,000 additional owners of your company now (although the original owners will probably keep a bunch of those shares for themselves) each having a $10 stake in it, but you've created $1M in cash for your company to use in return for losing some control over what the company does.

On ownership: The previous owners CAN cash out and transfer all control to the Board of Directors, sure. But they often get some shares in return for surrendering part of their ownership, and that they will want to (or in some cases must, for a period of time) hold onto. If a company was successful enough to IPO, stakeholders are usually going to want to keep the people responsible for that success from leaving, so they incent them to stay with extra shares and stuff.