Running a business needs consistent cash flow to fund their day-to-day operations. Of course, it is not possible for a single or handful of individuals running a company and thus, an entrepreneur is required to take calculated steps to raise funds for the business.
In the age of neck-to-neck competition, it is significant to have a throughout knowledge and understanding of the difference between FPO and IPO to participate in the stock market.
Initial Public Offering or IPO is a process when a company decides to get listed on the stock exchange board and offering its trade to the public for the first time. IPOs are generally announced to raise funds to finance its coming projects. In return to the investment in IPOs, the company allots shares to the investors.
On the other hand, Follow-on public offering or FPO is a process when a company issues additional shares to the public with a view to raise funds and diversify its equity base. There are two types of FPOs – dilutive offering and non-dilutive offering. In dilutive offering, the company decides to increase the share float by issuing additional shares to raise funds, reduce debt, or expand the business. While, non-dilutive is a process where investors individually sell-off their shares. Notably, non-dilutive offerings have nothing to do with benefitting a company or current shareholders.
Key difference between FPO and IPO:
• IPO is the first public offering of the shares by a company, where FPO is the second or further attempt to issue shares to the public. FPO is issued by an already listed company. Any number of shares issued after IPO will be termed as FPO by a company.
• IPO is issued with a purpose to raise funds by inviting public investment, while FPO is further issued to either make the cash flow consistent or to fund future projects.
• IPOs are offered by the private companies that are not listed on the stock exchange board. On the other hand, FPOs are announced by an already-listed company.
• IPOs are generally considered riskier and less safe than FPO. This is because in IPO, it’s hard for an individual investor to predict the company’s future, while in FPO, the investors are already aware of the company’s position and thus, don’t fear to invest in. in addition, even new investors can study the company’s past performance in the stock market to know about its future growth prospects.