IPO or Initial public offering refers to offering shares to the general public in a new stock issuance. Initial public offering is a method of raising capital from the public. Not all firms can get an IPO, they first need to meet the requirements set by the exchanges and the Securities and Exchange Commission (SEC) to hold an IPO.
The companies aim to go ahead with IPO as it gives them an opportunity to grow and expand. The increased transparency and share listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as well. Also This facilitates easier acquisition deals (share conversions) and increases the company’s exposure, prestige, and public image, which can help the company’s sales and profits.
On the contrary there are few disadvantages for going ahead with an IPO as IPOs are expensive, and the costs of maintaining a public company are ongoing and usually unrelated to the other costs of doing business.
The most recent and famous IPOs which took place include Burger King, Barbeque Nation, Indigo Paints, .
Investing in IPOs might be risky as not all firms would give a good return on investment and the price of stock might fluctuate and the price set by firms could lower than the market stock price. Thus it would be sensible to invest only if you have read and studied about the firm and are ready to take risk. Most commonly people who invest in IPOs are venture capitalists.