IPO (Initial Public Offering)
Basic Information
Initial Public Offering (IPO) refers to the event when a private company starts offering its assets to the public for the first time. Start-up companies or entrepreneurs who need funds for further development often choose to do an IPO.
Before the IPO is carried out, a committee of financial and regulatory experts should be formed to audit all the necessary processes to ensure that everything is done safely. Once a company makes its initial public offering, it can still choose to raise additional funds through secondary offerings in the future.
What is an Initial Public Offering?
An Initial Public Offering or IPO, also referred to as a primary purchase offer, defines the event when a company starts selling its assets on the market for the first time. It is considered a milestone as the company has successfully reached the point where it is able to offer assets publicly and reach serious investors.
In some cases, a company does not announce an IPO, so the initial asset sale is considered private. While this represents a reduction of the company’s risk, there are also disadvantages, such as the fact that private sales can only attract a limited number of investors.
What is the difference between an IPO and an ICO?
Although IPO and ICO (Initial Coin Offering) are often presented as interchangeable terms, they are different from each other.
IPOs typically refer to established businesses that sell partial ownership stakes in their company to raise funds. On the other hand, ICOs are mainly used as a fundraising mechanism, allowing companies to raise funds in the early stages.
Additionally, IPOs are highly regulated by government bodies and work well in centralized environments. In contrast, ICOs lack regulation and the risks tend to be much higher.
PROs
- Increased liquidity as assets can be bought and sold by anyone in the public
- Increased exposure and added prestige mean a greater likelihood of obtaining more capital
- A company that has worked with regulators and crypto exchanges on an IPO already has more credibility in spite of its early stage
CONs
- To conduct an IPO and have assets available on crypto exchanges brings additional efforts, risks, and expenses for companies
- A secondary asset offering can reduce the existing assets’ value on the market by creating new assets and offering them for public sale
- As companies have to disclose financial, strategic, and other information, this information can be used by competitors
Conclusion
Taking a private company public raises capital so the business can finance its growth or use the funds for other business needs. Before companies decide to go public, it is important that they weigh the pros and cons.
Analyst opinion
IPOs can be a significant milestone for companies, providing them with an opportunity to raise capital and access the public markets. From an investor's perspective, participating in an IPO can offer the potential for early-stage investments in promising companies with growth prospects. IPOs often generate substantial market interest and can provide investors with the chance to benefit from the company's future success.
However, it's important to recognize that IPO investments come with certain risks, especially in the fast developing system of DeFi. Therefore I would strongly suggest careful analysis and due diligence. Investors should thoroughly evaluate the company's business model, competitive landscape, financials, and growth prospects. It's crucial to consider factors such as management expertise, DeFi trends, and potential regulatory risks that could impact the company's performance post-IPO.
Analyst
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