What Is An Initial Public Offering (IPO): Reasons For Launching An IPO

What is an IPO (Initial Public Offering)

Initial Public Offerings or IPOs, as the name suggests, are the first batch of shares that are sold by any company. It is usually considered a gamble to invest in IPOs as no one can accurately predict the outcome. There have been instances when people who have invested money in IPOs have made a killing on the first day but there have also been instances when huge sums of money have been lost.

Reasons For Launching An IPO

  • An IPO is considered to be one of the safest ways to raise money. A lot of companies rely on IPOs to raise additional capital in times of need. Though the option of taking a debt or selling a part of the organization is always available, most corporations prefer to launch IPOs to get the required money.
  • The main reason for this is that money raised through IPOs does not have to be repaid while money raised through any other means has to be repaid with interest.
  • However, there are some disadvantages also, as the owners lose a part of the ownership. Hence, corporations decide whether or not to launch an IPO on the basis of a number of factors.
  • The process of taking out an IPO can be extremely complicated and is best handled by a team of experts.
  • The first step is to hire an investment bank that will decide the number of shares that will be taken out and the price of each individual share.
  • All the information regarding the corporation will also be made public and the details are investigated by a government agency.
  • The performance of the IPO will depend on a lot of factors like the brand name of the company, the reliability of the owners and the current market conditions.

It is just not possible to accurately predict the future of an Initial Public Offer, but you should always consider the overall stability of the company and the world prior to investing in it. The smart investor always does a complete research so that he or she does not incur a loss under any circumstances.

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