IPO (Initial public offering)

While growing up and operating on the market, the company needs more finances from outside. Therefore, it decides to go public. One very famous form of getting more funds is the process IPO (Initial Public Offering) – when for the first time, the company makes shares available to the public for purchase.

IPO is when a company issues equity – company holders make ownership of the company available and in exchange for that ownership, the new shareholders pay some amount of money.

Raising money can be done privately and publicly. Raising money privately is helpful because the company does not have to share information with many people and management does not have to worry about confidential information.

With IPO, the company that was running private begins selling its stock to outside investors and gets public. In this way, the company raises capital, and also shareholder structure is getting bigger and more diversified.

For start-ups, it is a really important and effective way of starting operations on the business market. Many start-up companies issue IPOs because they are seeking a source of capital to fund growth, also it is very important how many new shareholders are involved in the decision making process.

In other words, the process IPO is known as “going public” for the company and it is a very big and meaningful step for the company, as it has access to raise money, raise recognition and make society interested.

The procedure looks like this – the company addresses the bank to underwrite the IPO.

Bank will determine the valuation of the company and will buy the shares from the company at a set price. After the bank will distribute them and help the company file with the Securities and Exchange Commission (SEC), the last step is to get listed to exchange.

To proceed with an IPO, a registration statement must be filed with the SEC. That statement contains information about the issuing company, including financial and ownership details.

Once the SEC approves the IPO, a date for it is set. The underwriter will also work with the issuing company to set an initial stock price for the time that shares are made available to new investors

Though investing in IPOs can be profitable, it is much riskier than investing in established companies with a strong history. Companies are usually more focused on growing the business than delivering profits to investors.

In the end, let’s focus on the main advantages and disadvantages of an IPO.

Advantages of IPO:

Enlarging and diversifying equity base
Increasing exposure, prestige, and public image
Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

Main Disadvantages of IPO:

The requirement to disclose financial and business information
The risk that the required funding will not be raised
Public dissemination of information which may be useful to competitors, suppliers, and customers.
Loss of control and stronger agency problems due to new shareholders

+995 579 60 50 50

IPO (Initial public offering)

IPO (Initial public offering)

ADDRESS

PHONE

EMAIL

Cart