An initial public offering (IPO), is the first sale of stock by a formerly private company. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an Investment Banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares, that is, the share price.In 1602, the Dutch East India Company was the first company in the world to issue stocks and bonds in an initial public offering.
When a company lists its securities on a public exchange, the money paid by investors for the newly issued shares goes directly to the company. An IPO, therefore, allows a company to tap a wide pool of investors to provide it with capital for future growth, repayment of debt or working capital.
Why invest in IPO :
An IPO has the potential to make you a good return in a short period of time. It is standard practice for IPOs to be priced below “fair market value”, so the stock rises in value immediately upon issue, clearing a healthy profit for initial shareholders.