An initial public offering (IPO) is the process of launching a firm on to the stock exchange for the first time by inviting the general public and financial institutions to subscribe for shares – effectively selling them part of the firm. IPOs are also referred to as ‘flotations’ and the process as ‘floating’ or ‘going public’.
IPOs generally involve young firms trying to raise capital to expand or realise returns on their founder’s investments, but well-established firms also float. Firms that are loath to float – as it involves giving up some autonomy and sharing sensitive information with the market – tend to use the debt market (bonds) for finance instead.
• Watch Tim Bennett’s video tutorial: A lesson from Facebook – avoid IPOs.