An Initial public offering or IPO is a stock issuance event where shares of a private corporation are offered to the public. With an IPO, a company can raise capital from public investors.
Understanding the term:
An Initial public offering or IPO refers to a private company offering its shares to the public for the first time. The term “going public” may also be associated with IPOs. IPOs are usually conducted by companies to allow their stakeholders to sell their shares in the market. Startups, growing companies, and entrepreneurs conduct IPOs to raise funds for further developments. Private investors can fully realize the gains from their investment when an IPO is conducted. This is due to the attached share premium that private investors get while also allowing public investors to participate. Once a company has conducted an IPO, it can still raise further funds by announcing secondary offerings. However, companies have to adhere to strict requirements by exchanges and regulatory bodies such as the Securities and Exchange Commission (SEC) to hold an IPO. ICOs are the equivalent process for cryptocurrencies. The only difference between an ICO and IPO is that investors receive a token that doesn’t represent any equity in the company in the case of an ICO. In contrast, an investor receives a share of the company in case of an IPO.
After an IPO, a company becomes open to the public. It can allow its employees to be stockholders for increasing motivation. Conducting an IPO can also increase a company’s reputation and credibility in some cases.