IPO Basics
Content
Content:
- IPO Advantages and Disadvantages
- IPO Types (Mainline IPO and SME IPO)
IPO stands for Initial Public Offering. In an IPO, a company offers its shares to the public for the first time via the primary market. A primary market, also known as a new issue market, is a place where securities are created or issued directly by issuers and made available for the first time to investors, unlike the secondary market.
Common reasons for taking a company public
There are 3 main reasons why a company should go public:
- The owners or investors of the company want to sell a significant stake and make money.
- The company wants to raise fresh money to expand the business and build new production facilities.
- The company wants to pay off accumulated debt and clean up its books.
Why does a Company Issues IPO shares?
A company issues an IPO for a number of reasons. Let us look at each of these reasons in detail:
1. Raising Capital
One of the main reasons for IPO is to raise capital for expansion, growth, debt repayment, and for the future. A company goes through various financing phases to meet its capital needs.
Funding stages in a company's life cycle:
- Self-funding, funding from family and friends.
- Angel Investors
- Venture Capital
Practical deep-dive
In practice, "IPO Basics" is best understood by breaking it into steps: (1) define the goal, (2) identify the inputs you control, (3) list the constraints (rules, timelines, eligibility), and (4) decide how you will measure success. This approach keeps decisions disciplined and reduces avoidable mistakes.
When you apply "IPO Basics" in the context of "Introduction to IPO", focus on the “why” first (the business reason) and only then the “how” (the process and documentation). The most common errors happen when people jump directly to execution without confirming assumptions and timelines.
Who this is for
If you are an investor, your focus is risk, valuation, timelines, and making decisions using official documents.
Common questions
- What problem does "IPO Basics" solve, and when is it the right choice?
- What are the key risks and how can they be reduced?
- Which numbers (KPIs) matter most for "IPO Basics" and why?
- What are the deadlines or timeline checkpoints to watch?
- What information should you verify from official documents before acting?
Quick checklist
A simple checklist you can reuse for "IPO Basics"
| Check | Why it matters | What to look for |
|---|---|---|
| Goal clarity | Prevents wrong decisions | A single sentence objective and expected outcome |
| Eligibility/rules | Avoids invalid actions | Latest rules, category limits, required approvals |
| Timeline | Prevents deadline misses | Key dates, cut-off windows, settlement timelines |
| Documentation | Reduces errors | Forms, demat/bank details, disclosures, confirmations |
| Risk plan | Protects capital and reputation | Downside scenarios and your exit/mitigation plan |
Make it professional
Write your decision in 5 lines: goal, assumptions, numbers you used, risks you accept, and what would change your mind. This improves outcomes over time.
Worked example
Example: you are evaluating an opportunity. Read the official disclosures, compare valuation/risk with peers, define a time horizon, and choose an action (apply / avoid / wait). The key is to base decisions on facts, not only sentiment.
Mistakes to avoid
- Ignoring timelines and missing cut-off windows.
- Relying on rumors or unofficial sources instead of official documents.
- Over-weighting one metric (price, coupon, GMP, subscription) and ignoring fundamentals.
- Not sizing positions based on risk and liquidity constraints.
- Not having an exit/mitigation plan for adverse outcomes.
Mini‑FAQ
- What is the single most important document/source here? → The official offer/prospectus + exchange/registrar updates.
- What one number should I watch first? → The number that best captures risk (leverage, cash flow, credit rating, or dilution impact).
- What is the simplest success definition? → A decision that matches your horizon, risk tolerance, and objective.
Summary (takeaways)
- Keep "IPO Basics" decisions process-driven: goal → rules → timeline → execution.
- Prefer official information, documented assumptions, and conservative planning.
- If something is unclear, reduce size or skip—uncertainty is a risk.