What is an IPO - Initial Public Offering?

Lately, one of the biggest events in the investment market has been IPOs. Although it's popular in the industry, many people have doubts about what is IPO. Generally speaking, it marks a company's debut on the stock exchange, arousing the interest of many shareholders. Check it out below. 

What is an IPO?

One of the biggest questions in the investment market is undoubtedly IPOs. However, even though it is one of the biggest events in this market, it raises several questions for shareholders, 

especially beginners, such as: what is an IPO? 

First of all, IPO is an acronym for a word in English, which basically means: Initial Public Offering. Translated into Portuguese, it means "Initial Public Offering". This event marks the debut of a company on the stock exchange.

As soon as the shareholders make their transactions in the company's shares, it becomes a publicly traded company. It is important to note that all the companies that take part in the IPO are at an advanced stage of maturity, i.e. they are considered large. 

What is the purpose of the IPO?

The main purpose of an IPO is to open a company's capital on the Stock Exchange. In this sense, the company's shares and papers begin to be traded on the market, reaching out to new interested shareholders. 

However, in order to achieve this goal, several objectives must be met. The benefits that IPOs offer are for the company and the investors. There are more purposes for the common opening of these capitals. Check them out below: 

1. profit for shareholders

One of the biggest advantages of an IPO is that it can help shareholders make significant profits from their companies. In other words, those who hold a stake in the company gain from going public, especially when the shares appreciate in value. 

The partners are the original shareholders and therefore own part of the company's shares. When the company makes its debut on the stock exchange, and a possible growth in trading occurs, it is possible to benefit from this movement. 

2. Increasing liquidity

The IPO generates more than profits for those who participate in the company's business, as it also increases liquidity in relation to equity. When shares are traded, it's easy to participate in the company and convert it into cash. 

Liquidity also acts as an attraction for interested parties. In this sense, the greater the volume of trading in the company's shares, the greater the interest investors will have in the company's shares. 

3. Visibility for the company

Among the benefits for the company is a significant improvement in its visibility. The main objective in these situations is to open up greater brand exposure and, in this sense, attract interested people. 

Another characteristic of the IPO is that it consolidates a brand in the market, as well as being a great differentiator between competitors. The main reason for this is that these share offerings are public. 

After all, as communication happens across the board, this is the solution for the business to get the exposure it wants in the market. If the performance is pleasing in the company's IPO debut, the process helps with brand perception. 

4. Possibility of expanding the business

Another feature of an IPO is the possibility of expanding the business. After all, in addition to improving the company's image in the market, this procedure also grants increased brand visibility, especially if the debut is favorable. 

The main reason for expansion is to raise funds. Through the IPO, the company obtains funds that can be used for various operations, such as paying off debts, financing projects or strengthening its cash flow. 

5. Attracting trained professionals

One of the benefits that few entrepreneurs know about the IPO is the possibility of attracting qualified professionals to the company. This is especially true of executives who hold senior management positions. 

The main reason for this is that the offer of company shares works as part of a performance payment or bonus. In this sense, if the company shows good growth and uses the shares as a benefit, qualified professionals tend to occupy high positions. 

Types of offers

In principle, IPO offers can be qualified in different ways, depending on the origin of the papers and the destination of the funds raised. See below:

1. Primary Offer

The Primary Offering represents the sale of new shares issued by companies on the market. All the money raised in this type of operation goes into the company's cash flow, significantly increasing its share capital. 

At first, these funds are used to expand the business, which is done through new investments. 

2. Secondary offer

Unlike the Primary Offering, the Secondary Offering is the sale of shares that already exist. In other words, companies do not increase their capital. 

These papers usually belong to shareholders who want to reduce or dispose of their share of the business, for whatever reason. 

What's more, instead of the money going into the company's cash flow, as happens in primary offerings, it goes into the pockets of the owners of the securities sold. 

Is it worth investing in an IPO?

Before investing in IPOs, shareholders should assess the type of investment they wish to make. In other words, if your objectives are focused on the long term, an IPO is a great opportunity to hold a company's shares for a long period of time. 

On the other hand, there are short-term options, suitable for investors who want to sell their shares almost immediately. 

If you want to become a shareholder and grow with the company, you need to consider a few aspects. Normally, if you don't have any kind of history with information about the company, it means that it is new to the market. 

The main rule of an IPO is to present the company's information for the last three years. And this is a feature that can make life difficult for shareholders, especially those who want to grow with the company. This is because, depending on the data presented, the company can react in different economic periods.