An IPO, or Initial Public Offering, is the first sale of stock by a private company to the public. This is the crucial moment when a company steps out of its private cocoon, stepping into the light of public scrutiny, and the limitless opportunity, or indeed, peril, that the public markets bring. It is a process of immense significance and complexity.
A follow-on offering, on the other hand, occurs after a company has already gone public. It’s a secondary issuance, where a company raises additional capital by issuing more equity or debt. Now, keep in mind, these can be non-dilutive, meaning existing shareholders’ ownership stake isn’t affected, or dilutive, which means, yes, you’re right, existing shareholders’ piece of the pie does get smaller.
But one needs to understand, both of these mechanisms serve different purposes. An IPO is like opening the door to a whole new world, a transition from private to public. A follow-on offering, it’s akin to inviting more guests into your already public house, asking them to partake in your journey, sharing risks and rewards.
Well, that’s about it. Two tools in the vast financial toolbox, serving two different purposes in the realm of public markets.