Introduction To IPO
Most of the companies you come across have at least once wondered over the question, ‘when will my company complete an initial public offering?’ IPO is a worthy objective for several companies, as it provides a huge list of benefits like increase in publicity, reduced overall capital of the company, increase in the stock market, increase in funds, proves to be an opportunity for the founders, investors can go without closing, and increase in credibility.
It stands for Initial Public Offering, in simpler terms, it means offering a share of your private company to the public company.
Pros & Cons Of IPO
When a private company begins its journey, it gets a few numbers of early investors like founders, friends, and family. Once it reaches a growth peak, the company thinks of going public with the help of advertisements. Usually, this part of growth occurs when a company has reached a valuation of 1 billion dollars. This part of growth is called unicorn status.
After this stage, the company will get an opportunity to expand and grow. All the private shares which the company had become public shares and open for public trading. The public market brings in a huge opportunity for the company in the form of millions of investors and helps increase the company’s capital and equity.
There are many pros to IPO, there’s a list waiting as cons to IPO. Transaction costs, potential loss of control. Market pressures, additional regulatory requirements could all take a toll on the company you are working in. Most people believe that behind every company’s success, there’s a public factor, but there are many successful private companies as well like Dell, Cargill, etc, etc.
What To Understand While Doing IPO?
Run Background Research:
Try to know the company’s fund management team and their goals too. Your goals should match with their goals regarding the utilization of funds.
Flippers are the ones who buy stocks of the new company who has just gone public in order to sell them off at a secondary market for discounted rates to get quick money.
When the largest investors of a company are restricted from selling off their shares for a preconceived period of time after initiation of IPO, it is termed as a lockup period.
Underwriters Of IPO:
These people work with the fund management team at a closer level in order to help determine the IPO price of the securities, buy and sell off the securities to the investors through their own network channel.
Be careful to weigh all the pros and cons an IPO has to offer to your company. Consider all your alternatives. An IPO may or may not be suitable for your company. You just have to be patient enough to find that out. First, understand your company’s requirements and then fall for an IPO.