What is IPO Cycle?
- 01 Mar 2024
- By: BlinkX Research Team
An IPO (Initial Public Offering) is a public sale in which firm shares are offered to investors. IPOs are often performed by firms seeking to generate cash and provide a means for organisations to transition from private to publicly traded. When a corporation goes public, its shares become available for purchase and sale on the open market.
However, launching an IPO is a multi-day procedure. To launch an IPO, a firm must follow a certain IPO cycle that begins with preparing the Draft Red Herring Prospectus (DRHP) with the assistance of an underwriter and ends with the stock being listed on the stock markets. If you are a new investor unfamiliar with the phrase IPO, this blog is for you. Continue reading to gain a thorough grasp of the IPO and IPO cycle.
Understanding the IPO Cycle?
The first step is filing a Draft Red Herring Prospectus with the Securities Exchange Board of India. It is the process by which a company goes public; it raises money through an Initial Public Offering (IPO). The final step is to price the IPO and list it on stock exchanges.
IPOs can be risky as there is often a lot of hype surrounding them, and it can be challenging to know if a company is truly worth its valuation. However, they can also offer investors the chance to get in on the ground floor of a potentially successful company.
Read more about upcoming ipo
Table of Content
- Understanding the IPO Cycle?
- Different Stages of the IPO Cycle?
- Benefits of Going through an IPO Cycle?
- Drawbacks of Going through an IPO Cycle?
Different Stages of the IPO Cycle?
The following points will guide you through the various stages of an IPO cycle.
Benefits of Going through an IPO Cycle?
Benefits include increased capital, visibility, and liquidity.
- An IPO's key benefit is that it raises funds. Companies can generate enormous quantities of money by selling stock to the general public to support operations and expansion. This capital influx may help a firm grow, produce new goods, and recruit new personnel.
- An IPO boosts a company's visibility. Going public helps a company's brand gain publicity and name recognition. This greater visibility may entice new clients and partners.
- Finally, an IPO increases liquidity for stockholders. This liquidity enables shareholders to pay out their investments when needed or desired. After a corporation becomes public, its stock may be purchased and sold on the open market.
Drawbacks of Going through an IPO Cycle?
Despite the positives, there are several pitfalls that firms should be aware of before deciding to participate in the Indian IPO process.
- One of the major disadvantages is the expense. Companies must spend a significant amount of money to list their shares on a stock market, as well as continuing expenses such as compliance and audit fees.
- Furthermore, corporations may need to recruit more employees to deal with the heightened public scrutiny of being a publicly traded company.
- Another possible disadvantage is the time requirement.
Conclusion
The IPO cycle is a lengthy and complex procedure that allows firms to become publicly listed. While it may be expensive and time-consuming, it is worthwhile for businesses aiming to enter public markets. An IPO benefits shareholders by generating cash, enhancing visibility, and providing liquidity. However, it may be difficult and costly and put a corporation under pressure to deliver. Furthermore, there is a danger that the stock price may not match expectations, making it a hazardous investment for firms that are not expanding or profitable. Utilizing a reliable stock market app can assist in tracking investments and market trends in such scenarios.