What is Initial Public Offering – IPO ?
An initial public offering (IPO) or stock market launch is a type of public offering that is offered for the first time to the public. IPOs are often issued by almost all types of companies weather smaller, younger companies seeking capital to expand or by large privately owned companies looking to become publicly traded.
In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market. Going public raises a great deal of money for the company in order for it to grow and expand. Private companies have many options to raise capital – such as borrowing, finding additional private investors, or by being acquired by another company. But, by far, the IPO option raises the largest sums of money for the company and its early investors.
Investing in an IPO
IPOs can be a risky investment or can be productive as well. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little or no historical data to know about the company. Further, most IPOs are for companies that are new and going through a transitory growth period, looking to expand, which means that they are subject to additional uncertainty regarding their future prices.