Initial Public Offering

Initial Public Offering

Introduction

Initial Public offering Abbreviated as IPO. IPO takes place when company first sells its share to the public for raising capital. It is an option for provided by the company to the general public. (Anonymous 2007) The process processed with the help of underwriter. Underwriter activity is to help the company for completing the process of an IPO. Mostly underwriters are investment banking company. Other than IPO, several other offering could have been used by the AVG it includes the primary offerings in which securities issued to the large corporations. With the help, this issuing AVG would have strong financial backing for supporting their business operations.

Methods and Risk involved in an IPO

There are two types of IPO Traditional IPO and Auction Based IPO. Both categories comprise of different risks, costs and strategy for attracting investors.

Traditional IPO

In traditional IPO company hires an underwriter; the underwriter is usually an investment bank. With the assistance, of investment Bank Company researches the attractive market value of share for an IPO. (Richard A 2008) The research based on the amount company wants to rise with the help of IPO. After price determined, the price discounted for offering them to the real market. This strategy helps in attracting big investors because after the completion of the research process the bank and company starts a road show. (Ansoff, Igor 1963) In this road show, shares offered to the large investors. Most of the investors are institutional and affluent including the top clients of the investment bank. Investors start trading the stock from the first day of the IPO.

Auction Based IPO

Second category of IPO is Auction Based IPO. The process of the Auction based IPO includes the requirement of the internet to the investor. The use of internet opens the purchase of IPO stock and helps in attaining the large number of investors. As the internet is common technology. Whereas company still needs, and investment bank for underwriting process of the IPO in the case of the internet auction IPO the Underwriting cost is lower. This process also includes the road show in order to educate the large investor about the company. The purchasing will start from the day of IPO. (Killian, 2001) Investor can only buy shares in an open market. This category of the IPO is attractive to companies because it is less costly. In auction based price, there is a possibility that a company can make up a large community of investors.

There is a risk that if company overestimated the price of share, it might result in rising of less capital than expected. I think AVG should go for the Traditional approach for an IPO and raising capital. Auction Based IPO limits the amount of large investors. IPO based on Auction can be found attractive to companies, because it is less costly as compare to traditional based IPO, Moreover, in auction Based IPO share price closes at Market Value. In auction based IPO, there is a risk that if company overestimates ...