Difference between IPO and FPO

Difference between IPO and FPO

4 mins readComment
Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Dec 28, 2023 15:27 IST

IPO (Initial Public Offering) is the process by which a private company goes public by selling its shares to the public for the first time. On the other hand, FPO (Follow-on Public Offering) occurs when an already publicly listed company issues additional shares to the market, often to raise capital for expansion or other financial needs. In essence, IPO marks a company's stock market debut, while FPO represents subsequent offerings by a company with an established public presence.

 

Imagine a company, TechStart, deciding to go public for the first time. It launches an Initial Public Offering (IPO) to raise capital, attract investors, and list its shares on the stock market. A few years later, with TechStart well-established and aiming for expansion, it opts for a Follow-on Public Offering (FPO) to raise additional funds. This scenario illustrates the key difference between an IPO, a company's debut in public trading, and an FPO, an additional share offering by an already public company.

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Table of Content

Comparative Table: IPO and FPO

Aspect

IPO (Initial Public Offering)

FPO (Follow-on Public Offering)

Definition

First time a company offers its shares to the public.

Issuance of additional shares after the company is already public.

Purpose

To raise capital, expand, and become publicly traded.

To raise additional capital, often for expansion or debt reduction.

Investor Base

Attracts new investors during public debut.

Targets existing investors and new ones familiar with the company.

Risk

Higher due to lack of market history.

Comparatively lower, backed by the company's established market presence.

Pricing Strategy

Can involve price bands, often based on market potential.

Often priced at a discount to the current market price.



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An Initial Public Offering (IPO) is when a company first sells its shares to the public on the stock market. Before an IPO, a company is private with a small group of shareholders. The IPO marks the company's transition from private to public, allowing anyone to buy its shares. This process helps the company raise money from a broader investor base, which it can use for expansion, paying debts, or other purposes. It's a big step for a company, often indicating its growth and success.

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Key Differences: IPO and FPO

Nature: IPO is a company's first sale of stock to the public. FPO is an additional stock offering after the company is already public.

Purpose: IPOs are for raising capital for growth and public trading. FPOs are for additional funding or altering the capital structure.

Investor Perception: IPOs often attract high interest due to their novelty. FPOs target existing or new investors familiar with the company.

Risk Level: IPOs generally carry higher risk due to a lack of historical data. FPOs are perceived as less risky with an established market presence.

Pricing Mechanism: IPO pricing might involve price bands and book building. FPO pricing is often at a discount to the market price.

Wrapping It Up!

IPOs and FPOs are pivotal mechanisms for companies to access public capital markets, each serving distinct purposes. An IPO represents a company's initial step into public trading, aiming to raise fresh capital, while an FPO is a subsequent effort by an already public company to secure additional funds. Understanding their key differences, as highlighted in the comparative analysis, is essential for investors and companies alike to navigate the dynamics of stock market financing effectively.

Top FAQs on Difference Between IPO and FPO

What is the primary difference between an IPO and an FPO?

An IPO (Initial Public Offering) is the first time a company offers its shares to the public, while an FPO (Follow-on Public Offering) is when a company already public offers additional shares.

Why do companies go for an IPO?

Companies opt for an IPO to raise capital, enhance their public profile, and access liquidity. It's a crucial step for growth and expansion.

What is the purpose of an FPO?

An FPO is primarily used by companies to raise additional funds after going public. It's often for expansion, debt reduction, or improving the balance sheet.

Are IPOs riskier than FPOs for investors?

Generally, IPOs are considered riskier than FPOs as there's less historical data available about the company’s performance.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio