IPO (Initial Public Offer)

What is IPO (Initial Public Offer)?

When a company starts, it starts with Promoters funds, the Promoter gets the fund from (Savings, Friends, Family, etc), in the next stage if the Promoters needs more fund they can raise it through Angel Investors, Venture Capital or Private Equity Firm. After this, if the company needs more funds for the expansion of the business or for paying debt, they can go for IPO (Initial Public Offer).

Through the IPO, company raises equity funds by offering their shares to the public, people who participates in IPO and buy the shares of the company becomes the owners of the company, also known as "Shareholder's of the Company" means the company do not have to return the funds to its investors, because now they have became the owner of the company.

For example: (If a Investor buys 10% shares of the company, then now he is 10% owner of the company.)

• Why IPO

For expansion of the business.

To pare Debt.

Exit to previous Investors.

• Who can participate in IPO? 

Institutional Investors and Non Institutional Investors both can participate in a company's IPO.

Institutional Investors are entities which pools savings of the investors to buy securities of different companies. 

For example: Mutual Funds.

Non Institutional Investors can be Individual Investors who buy securities through their brokers.

•  Process of IPO.

Step-1: Hire an Investment Bank (merchant bank).

Step-2: Due Diligence and Filings.

Step-3: Pricing.

Step-4: Distribution.

Step-5: Application Process.

Step-6: Share Allotment.

Step-7: Listing on Stock Exchange.

• Benefits of IPO.

1. The company gets the fund they needed for the expansion of the business or for paying the Debts.
2. Because the company is issuing its shares for the first time probably the price of the shares will be low, and it is a very good advantage  or say very good opportunity for the Investors.
3. After the IPO the company gets listed on stock exchange the can raise fund anytime again if needed through Right Issue or FPO (Follow on public offer)
4. After IPO anyone who have Demat account can buy the shares of the company.
5. Now the Investors have more liquidity they can take exit any time from the company by selling the shares and transferring the ownership.

HAPPY INVESTING.