Raising Capital through IPO

An Initial Public Offering (IPO) refers to the process of offering shares of a private company to the public. An IPO is a very big step for a company. It allows a company to raise capital which is needed for its growth and expansion. This also increases financial transparency and market credibility which can, in turn, attract more investors and better terms. It is also a good opportunity for public investors to participate in the offering.

Prior to an IPO, a company is considered a private company. It may have a limited number of shareholders which include early investors like family, friends, and, angel investors. As the company grows in size and reaches a stage where it feels that the next level of growth is possible only after becoming a public company, it decides to take this step. Some of the points about IPO are:

  • IPO refers to the process of offering shares of a public company to the public by issuing stocks.
  • The authorities which control the exchange and trade of stocks have some strict requirements which need to be fulfilled.
  • IPOs can give much-needed capital to a company by offering their shares.
  • Companies need to thoroughly understand the market and their own requirements. They hire investment bankers to do the planning. It is only after careful planning that date and price for the IPO are set.
  • Sometimes IPO is also used as a strategy to exit from the company by the founders and early investors.

Underwriting is a very important process while a company offers IPO. Click to read more. The underwriters present a proposal and valuation to the company based on their assessment. The company negotiates and finally, both parties agree on the terms. It is a lengthy process and requires a lot of negotiations and meetings for it to come to this stage. After all the due diligence is complete the company can start advertising for the IPO. Because a large sum of money is going to be raised, the advertising and marketing of the IPO have to be really effective. Bitcoin Trader is a good example of good marketing which is backed by a good product. Once the IPO hits the market it is open for a specific number of days. After this, there is a period of time when the company does all the calculations and looks at all the subscriptions it has received. Next is the allotment of shares to the public. If the IPO is oversubscribed then some people may not be allotted shares. If it is undersubscribed then it immediately lowers the company’s value in the stock market.