What is an IPO?

IPO or Initial Public Offer is a way for a company to raise money from investors for its future projects and get listed to Stock Exchange. Or An Initial Public Offer (IPO) is the selling of securities to the public in the primary stock market.

From an investor point of view, IPO gives a chance to buy shares of a company, directly from the company at the price of their choice (In book build IPO's). Many a times there is a big difference between the price at which companies decides for its shares and the price on which investor are willing to buy share and that gives a good listing gain for shares allocated to the investor in IPO.

From a company prospective, IPO help them to identify their real value which is decided by millions of investor once their shares are listed in stock exchanges. IPO's also provide funds for their future growth or for paying their previous borrowings.

In other words;

An initial public offering (IPO) is when a company issues common stock or shares to the public for the first time.

It is the process where a privately held company becomes a publicly traded company with the initial sale of its stock. An IPO is a tool that companies use to secure capital through investments for future use. In most instances, this investment is used to expand or improve the business.

A corporate may raise capital in the primary market by way of an Initial Public Offer (IPO), rights issue or private placement. An IPO is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. The requirement of funds in order to finance the business activities motivates entrepreneurs to approach the new issue market. Initial Public Offer (IPO) is a route for a company to raise capital from investors to meet the expenses of its projects and to get a global exposure by getting listed in the Stock Exchange.

IPOs are issued by smaller, younger companies seeking capital to expand, as well as by large privately owned companies looking to expand & become publicly traded. When a company lists its securities on a public exchange, the money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of investors to provide it with capital for future growth, repayment of debt or working capital.

IPO can be used as both a financing strategy and an exit strategy. In a financing strategy, the main purpose of the IPO is to raise funds for the company. In an exit strategy for existing investors, IPOs may be used to offload equity holdings to the public through a public issue. A company selling common shares is never required to repay the capital to investors. Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public.

There are several benefits for being a public company, namely:

• Supporting and diversifying equity base
• Enabling cheaper access to capital
• Exposure, prestige and public image
• Attracting and retaining better management and employees through liquid equity participation
• Facilitating acquisitions
• Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.
• Increased liquidity for the equity holder