All the business entities need fund flow to finance their day to day operations. Therefore, for raising funds for the business there are two ways i.e. in the form of equity or through debt which represents the borrowed capital of the company. In equity, the entity approaches various individuals to sell its shares at a fixed price and when it is done for the first time it is referred to as IPO. While on the other hand, when the shares are offered for sale for the subsequent public contribution it is referred to as FPO.
Today, it is very important and beneficial to have a basic knowledge of IPO and FPO which is often used in the stock market. Also, let us discuss FPO vs. IPO below.
IPO is an abbreviation of Initial Public Offer. When a company is going for a process of getting listed on the stock exchange and publicly traded, IPO is the first public offering, it is the main source of the company in acquiring money from the general public to finance its projects and the company allots shares to the investors in return.
FPO is an abbreviation of a Follow-On Public Offer. The process of FPO starts after an IPO. FPO is a public issue of shares to investors at large by a publicly listed company. In FPO, the company goes for a further issue of shares to the general public with a view to diversifying its equity base. A prospectus is offered by the company.
There are two types of FPO:
- Dilutive offering
- Non-Dilutive offering
Now since we have learned above what is an IPO and what is FPO, now let us learn the difference between IPO and FPO and let’s compare IPO and FPO. For a company to run and grow, requires fund flow. Not just a start-up but even well-established companies require funds in order to continue with their ongoing process and to expand their business. Many times for the owner of the company, it is not possible to provide continuous supply of funds therefore, issuing share to the general public is the most convenient way for a company to raise capital.
Key Difference: IPO vs. FPO
- IPO is the first public issue of the shares of a private company that is going public whereas FPO is the second or subsequent public issue of the shares of an already listed public company.
- IPO is released with an intention to raise capital through public investment whereas FPO is offered with an aim to inflow subsequent public investment.
- An IPO is generally riskier than FPO as in IPO an individual investor does not know about what may happen with the company in the future. On the other hand in FPO, the investors are aware as the company is already listed on stock exchange. Therefore, the investors can study the past performance and make assumptions about the company’s future growth prospects.