What Is IPO?
Leveraging IPO, a company can transition from being a private company to become public. The process gets the company listed in the Canadian stock market. But there is more to it. Let’s dive right in.
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Private companies in Canada achieve a significant milestone when they declare going public. Initial Public Offering (IPO) is the process of a private company becoming a public entity. Through the IPO, the company offers securities to the public that were earlier confined to private stakeholders. The IPO must get listed in the Canadian stock exchange as a part of the IPO process.
We present a comprehensive guide to Initial Public Offer or an IPO.
Here are the key terms of the IPO process.
Public Company
A public company in Canada has its stock traded on a Toronto stock exchange (TSX). As a private company goes public, it gains access to the stock and debt markets, making it easier to raise money for fund expansion.
Private Company
A private company is:
- One that is not a public corporation until it launches its IPO.
- Not owned by one or more public corporations based in Canada.
- Not listed on TSX or does not trade in its shares in the public domain.
Stock Exchange
A stock exchange is a marketplace for stockbrokers and traders to buy and sell securities such as shares, stocks, bonds, and other asset classes.
Angel Investors
An angel investor is a high-net-worth person who invests in small businesses or entrepreneurship to share the company’s equity (ownership) and eventually earn profit by selling the equity.
Venture Capitalist
Venture capitalists are investors with a large sum of money to invest. They prefer to put their money into companies that have long-term growth potential.
What is an IPO?
The trendiest way for a private company to go public is through an initial public offering (IPO). The business issues the share of stock to the public and lists these securities on a stock exchange during the IPO process.
Companies go public to raise additional capital from outside investors to expand or develop their business operations. Going public also improves the perception of the corporation and boosts its brand profile.
As a result, the organization will access additional sources of funding from angel investors and venture capitalists. These investments help the company get crucial resources like technology exchange and a high-quality workforce.
When can a company file for an IPO?
There is no one size fits all metrics. Some businesses have been around for decades before filing for IPO, and others will file an IPO within a shorter span of its existence.
When an organization reaches a size where angel investors, venture capitalists, and private investors can no longer finance it, offering stock to the public provides them with a cash infusion to expand further.
How to buy stocks from an IPO?
For most stocks, all you must do is place an order with your broker and wait for your shares to arrive. IPO stock is pre-sold to a select group of investors. Before the IPO bell rings, the buyers have already placed the orders for IPO.
It implies that most citizens without exclusive access could not purchase IPO stock. There are only four ways to get your hands on shares of the firm that just applied for an initial public offering.
1. Associate with an online brokerage firm that accepts shares.
The investment bank invested in the IPO may choose to give the shares to selected online brokerage firms to sell to their registered members. However, just because your broker has shares does not guarantee that it will sell them to you. It may sell those shares to its most premium customers.
2. Associate with a financial institution.
Create a partnership with an investment bank if you deal in IPO stocks. The investment bank that buys the shares of the IPO will sell a substantial portion of the stock to their customers directly.
3. Look for a mutual fund that has IPO shares.
Some mutual fund management houses also buy IPO stock for their investors. You are investing in the company if you buy shares in the mutual fund, even though it theoretically owns the IPO stock.
4. Be patient and buy IPO stocks like any other stock.
You do not need to buy a stock when the price is dropping. In reality, it is always better to wait until the hype has died down and the price established before investing. Allow time for the stock to recover and ensure you are not overpaying.
Big investment banks that can effectively promote a recent issue would usually back successful IPOs. Individual investors can get shares by opening an account with a brokerage platform that has gained an allocation and wished to share it with its clients. If you want to know more about topics related to investments, you can refer to our articles on IPO.
