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
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.
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.
