Translation:

Initial Public Offering (IPO) = Initial Public Offering.

Simplified definition:

It is the process that a private company undertakes to sell its shares (ownership stakes) to the general public for the first time in the stock market (stock exchange). With this step, the company transforms from a "private" company (owned by a limited number of founders or brave investors) to a "public" company where anyone can buy its shares and trade them.

What does it mean to you?

  • Investment opportunity: It gives you as an individual investor the opportunity to buy a stake in an ambitious company at the beginning of its listing on the market, hoping that the value of its shares will grow and achieve profits in the future.
  • Liquidity and credibility: If you are an employee of the company and own shares (within incentive programs), you will be able to sell them in the market and convert them to cash. For the market, the IPO means the addition of a new company that is subject to strict supervision and is committed to publishing its financial data transparently.
  • Potential risks: Newly listed stocks are often very volatile in price in their first days, and there is a risk that the share will not perform as expected after the offering.

Common question:

Why do companies bear the exorbitant costs and complicated procedures for a public offering instead of borrowing from banks?

Answer:

For several strategic reasons, the most important of which is:

  1. Raising massive capital: Obtaining very large sums of money from thousands of investors to fund ambitious expansion and growth plans without bearing the burden of debt and bank interest.
  2. Paying off current debts: Using part of the proceeds from the offering to pay off previous loans and reduce financial burdens on the company.
  3. Exit for early investors: Enabling the company's founders and early brave investors to sell parts of their shares and reap the benefits of their investment and patience over years of company building.