Ever wonder how businesses raise money to support their expansion? There are two primary ways to do this on the stock market: IPOs (initial public offerings) and FPOs (follow-on public offerings). Although they both entail the sale of shares, they address distinct phases in the development of a firm. Making educated investing decisions requires an understanding of the differences between IPOs and FPOs.
IPO: Taking the Lead
Envision an innovative startup with a ground-breaking concept. They have successfully launched their business on their own through bootstrapping, but they require a substantial infusion of capital in order to expand. An IPO is useful in this situation. A corporation makes its stock market debut through an IPO. This is almost their first public offering of shares.
Gains for the Company from an IPO:
Capital Raising: Obtaining funds is the main goal of an initial public offering (IPO). The corporation raises the funds required for debt repayment, R&D, or expansion by selling shares.
Enhanced Brand Awareness: A public offering (IPO) brings a company into the public eye, drawing interest from the media and possible investors.
Increased Liquidity: When a company is listed, its shares can be traded, giving current shareholders access to more liquidity.
An Actual IPO Example:
Let us imagine that the local transportation market has been affected by a ride-hailing app called “Taxi Whiz.” Although they have investment from angel investors, they still require additional money to control the entire country’s market. Therefore, Taxi Wiz chooses to launch an IPO to become public. When investors recognize Taxi Whiz’s potential, they purchase shares in the company, providing a much-needed financial boost.
FPO: Moving Forward With It
Let us go back a few years. Now a well-known brand, Taxi Whiz has effectively extended its offerings throughout the nation. To build the technology for self-driving cars, they will need more funding, though. An FPO is relevant in this situation.
An FPO is an after-the-fact share offering made by a firm that is already public. It enables them to raise further money following their first public offering.
Benefits of an FPO for the company:
Raising More Capital: Companies can leverage an FPO to fund further growth initiatives or strategic acquisitions.
Diversifying Ownership: An FPO can help dilute the holdings of existing shareholders and bring in new investors.
A Real-world FPO Example:
Our ride-hailing giant, Taxi whiz, decides to conduct an FPO to fund their self-driving car project. Existing investors and new ones see the potential in this innovative technology and purchase the newly offered shares. This allows Taxi whiz to raise the capital needed to stay ahead of the curve.