IPO: Introduction, Approach and Process

Several IPOs happen every year. This number has even gone higher in recent years. 

But what does an IPO stand for? Why is IPO important? Why does a company conduct an IPO? And what is the procedure for an IPO? 

In this article, we’d try to look for the answers to all these questions. 

What is an IPO?

IPO stands for Initial Public Offering. When a company wants to raise funds through the public, it has to become a public limited company. It lists itself in the IPO stock market for the first time. One can become a part of that company by buying its shares. 

Why IPO?

There might be several reasons for a company to list itself in the stock exchange market and raise funds for itself. 

  1. Expansion

If a company is earning well and wants to expand, it can list itself in the market and raise funds through an IPO. Also, this gives a lot of publicity to the company and creates a buzz. 

  1. Repay Debts

Sometimes a company performs well, but it cannot make profits because of heavy debts. This is because the profit that it gains goes to the debtors. In such cases, a company might list itself to raise funds to repay its debts. 

  1. Exit the previous investors

Sometimes Angel investors, venture capitalists and PE firms that initially might have invested in the company want to exit. In this case, the company raises funds and repays its investors. 

What is the procedure for an IPO?

A company goes through the following process before its first IPO

Step1- Hire an Investment Bank

A company first hires an investment bank to prepare itself for the IPO. The bank looks at the company’s records, profits, reputation in the market, etc. Then, the bank helps the company to price its shares and further process. 

Step 2- Due Diligence and Filing

  • The hired investment bank works with its best efforts to raise the required amount through the IPO. The investment bank fills an underwriting. It is a type of contract that tells the company how the bank is going to work to raise the required amount. 
  • The company fills a preliminary prospectus, also called the red herring prospectus. It mentions all the data from competitors, capital structure, and company plans. 
  • The investment bank takes care of all the guidelines and regulations by BSE/NSE or SEBI. 
  • Finally, the investment bank also analyses the company’s valuation and lists the price for its shares. 
  • When this is done, the issue is marketed to attract buyers. Then, the application process starts and whoever is interested in the shares fills in an application to buy the desired shares. 
  • At last, shares are allotted.

STEP-3 Listing on the Stock Exchange 

After the IPO, the company can list itself under BSE or NSE for future exchange of its shares. 


IPO is a long but valuable process. It helps companies to raise funds and investors buy shares. New changes in SEBI have also fast-tracked the process. 

So, if you are interested in investing in shares and IPO, you can visit Shoonya and learn about recent IPOs, and their rates and find the best deals for yourself. 

Happy Investing!