IPO vs FPO
The few fundamental and basic concepts that an investor must learn about before actively starting with the markets include terms like IPO and FPO. IPO i.e. Initial Public Offering as well as FPO i.e. Follow-on Public Offer are essentially the 2 ways in which an entity can go public and raise money from the equity market.
There is also an option of corporate bond issuance through which a company can raise funds. In this article, we are going to deeply understand IPO and FPO and the difference between the two.
ALL ABOUT IPO
IPO is when an entity chooses to announce that it is going public for the very first time. Going public here means that the entity will now offer its shares to the general public at large while also being ready to get listed on the stock exchanges of the country like NSE and BSE. The very first time an entity gets listed at these exchanges and offers its shares to the public for the purpose of investing and trading, this offering is referred to as an IPO.
Significance for Investors
When you purchase a share or any number of shares in an entity, this indicates that you are getting ownership in that particular company. Once the company decides that it wants to go public, this also opens up many options such as ESOPs. A company may offer its employees ownership in the stock which also has various benefits like profit sharing.
Significance for Company
When an entity first starts, it received funds from VC, investors and a variety of corporations, sometimes even the government, once the company reaches an even bigger stage of expansion, and its funds are drying out or becoming insufficient, this then go towards launching an IPO, goes public in the market and becomes listed on the stock exchange.
This indicates that the company will receive funding when one decides to invest in it but this also comes with a lot of responsibility of running the entity in a manner that it is efficient.
ALL ABOUT FPO
FPO is a follow up to the IPO which is the issuance of shares after the company has become listed on the stock exchange. Simply, an FPO is an additional issue of shares while an IPO is simply the first issuance.
An FPO is carried out with the vision to raise additional funds and capital as well as reduce any existing debt that the entity needs to pay off. Unlike an IPO, a company can carry out an FPO in any of the two ways of Dilutive FPO and Non Dilutive FPO.
IPO vs FPO
IPOs are a lot more riskier than FPOs.
In an IPO, the price is either variable or fixed as a range, while in an FPO the price depends upon the shares as they increase or decrease and is driven by the market.
IPOs are oftentimes more expensive to bring than the FPOs. The reason is that the value of the company listing its shares is getting further diluted and hence FPOs are cheaper.
4. Share Capital:
In an IPO the equity increases because the entity decides to issue fresh capital to the public for the listing. In an FPO, the numbers of shares can either go up or down depending upon the type of FPO.
A company that is private or unlisted issues an IPO while an already listed company can do an FPO.