Initial Public Offering (IPO)
Community Submission - Author: Caner Taçoğlu
Initial public offering (IPO) refers to the moment a private company starts offering its shares to the public for the first time. The term “going public” may also be used to refer to IPOs in some casual instances.
Many companies decide to perform an IPO to enable stakeholders to sell their shares to the public. Startup companies, growing companies or entrepreneurs that are in need of funds will often choose the IPO route to raise funds for further developments. Before making an IPO, a committee of financial and regulatory experts should be formed to audit all the necessary processes.
Once a company has made its Initial Public Offering, it can still choose to raise additional funds by making secondary offerings in the future. Being a company that is open to the public has its own benefits, such as allowing their employees to be the stockholders so that they would be probably more motivated to work. In some circumstances, making an IPO may also increase a company’s reputation and credibility.
However, after an IPO, the company’s value will likely be evaluated based on its stock value, which might put a shadow on the real performance. Some companies might also inflate the value of their stocks artificially which might eventually lead to problems.
IPO vs ICO
Although often presented as analog and comparable terms, IPOs and ICOs (Initial Coin Offerings) are very different things. IPOs normally apply to established businesses that sell partial ownership shares in their company as a way to raise funds. On the other hand, ICOs are mainly employed as a fundraising mechanism that enables companies to collect funds for their project in early stages (investors are not buying any ownership in the company).
Moreover, the IPOs are highly regulated by governmental authorities and, in general, work well in centralized environments. In contrast, there is a lack of regulation for ICOs and the risks tend to be much higher.