Term of the Day - 31 January 2024

Today’s Term is “Initial Public Offering (IPO)”.

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time, thereby transitioning into a publicly traded entity. During an IPO, the company issues new shares to raise capital, and existing shareholders may also sell their shares to the public.

The IPO process typically involves several key steps. First, the company selects investment banks to underwrite and manage the offering. These banks assist in determining the offering price, drafting the prospectus, and marketing the shares to potential investors.

Once the Securities and Exchange Commission (SEC) approves the registration statement, the company announces its intention to go public and sets a date for the IPO. On the day of the IPO, shares are made available for purchase on the stock exchange, and trading begins.

For the company, an IPO offers access to additional capital for expansion, debt reduction, or other corporate purposes. It also provides liquidity to existing shareholders, including founders, employees, and early investors.

For investors, participating in an IPO can offer the opportunity to invest in a potentially high-growth company at an early stage. However, IPOs also carry risks, including price volatility and uncertainty about the company's future performance in the public markets. Overall, an IPO represents a significant milestone in a company's growth trajectory and its journey towards becoming a publicly traded entity.