Difference between IPO and FPO
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.
Explore: Stock Market Courses and Certifications
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. |
Read Later
Best-suited Financial Planning & Analysis courses for you
Learn Financial Planning & Analysis with these high-rated online courses
What is IPO?
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.
What is FPO?
A Follow-on Public Offering (FPO) is when a company that's already publicly traded offers more shares for sale to the public. Unlike an IPO, where shares are offered for the first time, an FPO happens after the company is already listed on the stock market. It's a way for the company to raise additional funds, often for expansion, paying off debt, or other strategic purposes. FPOs can attract current investors looking to increase their holdings or new investors wanting to buy into the company.
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.
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
Top Picks & New Arrivals
