When a company raises money from the stock market, it can do so through an Initial Public Offering (IPO) or a Follow-on Public Offer (FPO). While both are methods of raising capital, they are different in purpose, timing, and execution. Here’s a clear and detailed explanation of what IPO and FPO mean, how they differ, and why it matters to investors.
What is an IPO?
An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time and becomes a listed company on a stock exchange. This allows the company to raise capital by issuing new shares to retail and institutional investors.
Example:
Zomato’s IPO in 2021 marked its debut in the public market, where it offered shares to investors and got listed on both the NSE and BSE.
What is an FPO?
A Follow-on Public Offer (FPO) refers to a listed company issuing additional shares to the public after its IPO. FPOs are typically used to raise more funds for expansion, reduce debt, or meet regulatory capital requirements.
Key differences between IPO and FPO
| Feature | IPO (Initial Public Offering) | FPO (Follow-on Public Offer) |
|---|---|---|
| Stage | First-time share issuance and listing | Issuance of additional shares post listing |
| Objective | To raise capital and go public | To raise additional capital from the market |
| Listing status | Company is unlisted before the IPO | Company is already listed |
| Risk factor | Higher risk, limited financial history | Comparatively lower risk, track record exists |
| Price mechanism | Fixed price or book-building | Based on current market price |
| Regulatory process | Full SEBI approval and listing compliance | Simpler regulatory route compared to IPO |
In simple terms:
An IPO is a company’s first step into the stock market, offering shares to the public for the first time. On the other hand, an FPO is when a company already listed on the exchange issues more shares to raise additional capital.
Why it matters:
Understanding the difference between IPOs and FPOs is essential for investors. IPOs often involve more speculation and volatility due to the lack of public financial history. FPOs, however, allow investors to evaluate the company’s past performance before making investment decisions.
This knowledge can help investors make informed decisions based on their risk appetite, investment goals, and the financial standing of the company.
