For a company to grow & run itself, it requires funds. Even well-established companies require funds in order to continue with their ongoing process and to expand their business.
Oftentimes, it is not possible for the owner of the company to provide a continuous supply of funds. In that case, issuing share to the general public is the most convenient way for a company to raise capital.
IPO vs FPO – Introduction & Explanation:
IPO, a.k.a. Initial Public Offering is a way to raise funds by listing a company on the stock market for the first time.
On the other hand, FPO (a.k.a. Follow-On Public Offering) are shares that are issued a company that has already been listed on the stock exchange and want to raise more money from the market by issuing subsequent shares of that company.
In IPO, the company gets listed in stock exchange for the first time via an institution (investment banks or underwriters). This allows the general public to purchase shares of the company. This way the company provides a part of ownership of the company to general public, in return for capital. This is by far the most common way for a private company to go public and raise money.
[Suggested: To know more about IPO, read the article: What is an IPO? – Definition, Pros, Cons, Process]
Now, once the company starts growing further, it may require more capital to properly run its business. The company may require further capital for business expansion or to pay off outstanding debts. This is when the requirement for releasing Follow-on Public Offering or FPO pops up. FPOs are additional shares that are offered after the company has already been listed on the stock exchange and has undergone the process of issuing IPOs. There are two types of PFO that are issued: dilutive & non-dilutive.
[Suggested: To know more about FPO, read the article: What is Follow-On Public Offer (FPO) in Stock Trading?]
Difference Between IPO and FPO - Comparison Chart:
The following table shows the differences between IPO and FPO in a clearer format.
|Full Form||Initial Public Offering||Follow-on Public Offering|
|Listing Status||Issued before company gets listed on the stock exchange||Issued after the company gets listed on the stock exchange|
|Issuer||Unlisted Company||Listed Company|
|Objective||Raising capital through public investment.||Subsequent public investment.|
|Raising Capital||First time from Public||Subsequent public contribution|
|Predictability||Less Predictable||More Predictable|
|Profit||Thought to be Higher than FPO||Thought to be Lower than IPO|
|Types||Equity and Preferred||Dilutive and Non-Dilutive|
IPO vs FPO - The Conclusion:
The difference between IPO and FPO can be summarized as follows:
IPO is the first public issue of the shares of a private company that is going public. On the other hand, FPO is the second, third or subsequent public issue of the shares of an already listed company (public company).
IPO is released with an intention to raise capital through public investment. Unlike FPO, that is offered with an aim to inflow subsequent public investment.
IPO are relatively riskier than FPO. Since in IPO, an individual investor doesn't know of what is going to happen with the company in future. But in the case of FPO the company is already listed on stock exchange, so investors can study the past performance of the company and make an assumption about the company's future growth prospects.
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