What is An IPO & Types of IPOs

What is an IPO?

The process through which a private company or corporation becomes public by selling a portion of its stock to investors is known as an initial public offering (IPO). An IPO is usually launched to pump fresh equity capital into a company, to make current assets easier to trade, to raise capital for the future, or to monetize existing stakeholder investments.

The company’s shares are listed and can be traded freely in the open market once the IPO is completed. The stock exchange mandates a minimum free float on shares in both absolute terms and as a percentage of total share capital.

Types of IPO

1. Fixed Price Offering- The issue price that some companies set for the initial selling of their shares is known as a fixed price IPO. The price of the stocks that the corporation decides to make public is disclosed to the investors.

Once the offering is concluded, the market demand for the stocks can be determined. If investors participate in this IPO, they must pay the entire price of the shares at the time of application.

2. Book Building Offering- In the case of book building, the firm launching an IPO provides investors a 20% price band on the stocks. Before the final price is set, interested investors place bids on the shares. Investors must define the quantity of shares they wish to purchase as well as the price per share they are ready to pay.

The floor price is the lowest stock price, while the cap price is the maximum stock price. The final decision on the price of the shares is made by the bids of investors.