IPO and FPO

IPO and FPO

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A type of public offering known as an IPO (Initial Public Offering) involves offering shares to businesses, who in turn offer their own shares to the general public. However, there are a number of risks associated with applying for an IPO that must be properly considered. These risk factors can hinder the growth of your fund and deter any meaningful investment. The different dangers that are implied in applying for an Initial public offering are as under:

Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs) are essential mechanisms that companies use to raise capital by going public. An IPO is the process through which a company, previously privately owned, offers its shares to the public for the first time. It allows the company to raise capital from external investors and facilitates the trading of its shares on stock exchanges. Conversely, a Follow-on Public Offering (FPO) is an offering made by a publicly traded company after its initial IPO. In an FPO, additional shares are issued to the public to raise further capital.

However, there are differences between IPO and FPO. An important difference pertains to the timing. An IPO marks a company's first foray into the public market, while an FPO occurs after a company has already gone public. IPOs and FPOs serve different purposes. IPOs are typically used by private companies to raise funds for various purposes like expansion, debt reduction, etc. In contrast, FPOs are often employed by already public companies to raise additional capital for specific projects, acquisitions, etc.

IPOs and FPOs are subject to distinct regulatory requirements. The process of conducting an IPO is generally more rigorous and time-consuming. This is due to the need to comply with strict regulatory standards to ensure transparency. In contrast, FPOs often entail fewer procedural complexities since the company is already listed. Another significant difference is the impact on existing shareholders. During an IPO, new shares are issued by the company. It dilutes the ownership stake of existing shareholders, including founders and early investors. In an FPO, the ownership stake of existing shareholders remains largely unaffected as the company issues additional shares.

The allotment process in an IPO is a critical step in ensuring a fair distribution of shares among investors. The allotment process involves several stages, like subscription, price discovery and allotment. During the subscription period, investors express their interest in buying shares. The applications specify the number of shares they wish to purchase and the price at which they are willing to buy them. The investment bank and the company determine the IPO price based on various factors. The price is typically set through a fixed-price method. After the subscription period ends, the allotment is done based on various criteria like the price at which investors are willing to buy, regulatory guidelines, etc.