An Initial Public Offer (IPO) is the process by which a privately held (unlisted) company offers its shares to the public for the first time, enabling it to become a publicly traded company. The IPO may involve:

• A fresh issue of shares to raise new capital, or

• An offer for sale (OFS) of existing shares by promoters or early investors.

The end result of an IPO is listing on a stock exchange, which facilitates secondary market trading of the company’s shares.

Two Main Types of IPOs

1. Fresh Issue of Shares

   • The company issues new equity shares to the public.

   • This increases the total share capital and brings in new capital to fund business growth, repay debt, or invest in expansion.

   • The funds raised go directly to the company.

2. Offer for Sale (OFS)

   • Existing shareholders (e.g., promoters, venture capitalists, private equity funds) sell part or all of their stake to the public.

   • No new capital is raised for the company.

   • This type of IPO provides an exit route for early investors.

Often, IPOs are structured as a combination of fresh issue and OFS, serving both capital raising and investor exit needs.

Why Do Companies Launch IPOs?

1. Raising Fresh Capital

• To fund new projects, expand operations, reduce debt, or improve infrastructure.

• Unlike loans or bonds, equity capital from an IPO doesn’t require repayment or interest.

2. Exit Opportunity for Early Investors

• Private equity or venture capital funds typically seek an exit within 5–7 years.

• An IPO provides a liquid and public platform to monetize their investment.

3. Listing and Visibility

• Listing increases transparency, credibility, and market valuation.

• Publicly traded shares make it easier to raise future capital and attract institutional investors.

4. Valuation Currency for M&A

• A strong post-IPO market cap provides stock-based acquisition currency.

• For instance, listed companies can acquire other firms via share swaps.

5. Flexible Structure

• IPOs can combine fresh equity and OFS to balance capital needs with investor exits.

3 Things You Should Know About IPOs in India

1. Fixed Price vs Book Building Issues

• Fixed Price Issue:

  • Price is pre-decided and disclosed in advance.

  • Investors apply at that fixed price.

• Book Building Issue (most common):

  • Price is discovered through demand during the IPO bidding process.

  • A price band is announced (e.g., ₹95–₹100), and investors bid within the range.

  • Final issue price is determined based on demand (price discovery).

2. Offline vs Online IPO Bidding

• Offline: Fill a physical form and submit it through banks or brokers.

• Online: Place IPO bids via your broker’s trading platform or banking app.

  • Requires your trading account, demat account, and bank account to be linked.

  • More convenient, faster, and transparent.

3. Benefits of ASBA (Application Supported by Blocked Amount)

• Your application amount is blocked in your bank account, not debited.

• Only upon allotment is the corresponding amount debited.

• If you don’t receive an allotment, the blocked funds are automatically released.

• No need for refunds, which improves liquidity and efficiency for investors.

Conclusion: Why IPOs Matter

IPOs mark a major milestone in a company’s growth journey, unlocking access to public capital markets, enhancing corporate governance, and enabling wealth creation for shareholders. For investors, IPOs offer the opportunity to participate in the early stages of a company’s public life—but also carry risks related to valuation, market sentiment, and business performance.