The term Initial Public Offering (IPO) stands for the preliminary phase of stock sold by a particular company to raise the necessary capital for its growth. This is a particular way to raise capital for the expansion of the company. It can be very beneficial for the beginning phase of a company as it increases the financial stability of the venture.
It is a particular proposal to the public to raise capital and expand the business provisions. When IPO is filed, the shareholders are provided with a form from the company that needs to be submitted on time. As per the rules, IPO can be practiced for a minimum of 3 days to a maximum of 21 days. In case of financial institutions, the practice can be continued for 10 days maximum.
Factors to consider before raising an IPO
Before raising an IPO in India, there are several factors that are needed to be considered.
- Checking the past records and reliability of the promoters.
- Considering the firm facilitating or producing goods and/or services
- Type of products offered and their potential in the market.
- Checking whether the firm has collaborated with any technological firm or not
- Checking the associates’ status.
- The IPO raising firm’s historical records should be checked properly.
- Checking the factors related to the project value and other related techniques for sponsoring the IPO plan.
- Estimation of the productivity of the planned project the company is raising an IPO for.
- Analyzing the risks related to the execution of the new plan.
- Checking the authenticity of the authority reviewing the plan.
How raising IPO benefits business?
The ideal way to raise capital for a promising venture is via raising an IPO. As per the Securities Exchange Act of 1934, the financial providing of the company is controlled. The advantages of raising IPO for a company are mentioned below.
- The financial benefit is absolutely clear. The raised capital can be used for various purposes such as business expansion, diversification, research and development, paying off debt and other liabilities, etc.
- The ideal way to increase awareness about the service of the company in the public as well as gaining capital is via raising an IPO. It also increases the confidence of public for the company. In fact, Sanjay Nayak, CEO, Tejas Networks, quoted that raising an IPO causes a drastic positive change in the attitude of the customers. The brand image escalates as the credibility of the company multiplies.
- Generating publicity is also a proper benefit from the IPO stance. The escalation of market shares will stabilize the company and create immense brand awareness.
Public considerations before investing in an IPO
- Contemporary stage
The public will check whether the company is in a stabilized platform or going through turmoil or not in order to analyze the risk related to the investment. In general, the public wants to invest in a growing company or a stagnant company which has the potential to grow.
Checking the competition is also necessary to make a fruitful move. The stock price of the competitors’ brands can be checked before the IPO is chosen to invest. This provides a proper valuation of the stock.
- Fund utilization by the company
Before investing in an IPO, one checks the reason behind the fundraising venture. The investors will check the utilization of the capital rose so that they can gain confidence and make a proper move. This also provides a perfect clarity of the company’s intentions and provides more confidence to the investors.
- Track record
The investors will also check the track record of the company before allocating their money. if the growth chart is not stable but volatile, the investors will refrain themselves from the IPO. The stable growth rate is the prime factor that an investor will consider before introducing his money.
Raising an IPO in the Indian market is now a lot easier than before. Bharat Matrimony recently introduced its IPO to the Indian market. Other instances such as Manthan, a retail analytics company and Nazara, a gaming company in India is going public. Within five years, 13 small and medium ventures in India have opted for IPO to raise capital and expand their business. The globalization and availability of latest technologies are very promising for the companies to grow. This is why the Indian investors are also eyeing a good return in the near future by investing in the IPO.