Indian investors have earned splendid returns through Initial Public Offerings (IPO) over the last few years. Even Offer For Sale (OFS) have not disappointed despite their expensive valuations, barring a few exceptions. Nonetheless, the terminologies used in the context of fundraising by corporate can be quite confusing for starters. For instance, IPO and DPO (Direct Public Offering) are quite similar to each other, but there is still a fundamental difference between them.
IPO Vs DPO
IPO is a process through which a private limited company goes public by offering its shares to the public at large. It may issue fresh equity shares for this purpose or the existing investors may choose to dilute their stake, making a way to accommodate new investors—popularly known as OFS or Offer For Sale.
IPOs offer more stability and security to investors since they are heavily regulated. Minimum lock-in period requirements applicable to promoters and anchor investors leave little scope for foul play.
In one of our previous articles— Steps in the IPO process—we discussed the four stages every IPO-bound company goes through. Intermediaries play a quintessential role in making an IPO a success story.
What is a DPO?
DPOs or Direct Public Offers are similar to IPOs since, like IPOs, DPOs also help companies tap public markets to raise capital. Unlike in the case of IPOs, intermediaries don’t have any role in DPOs since corporations take the direct listing route and regulations are minimal too.
Can companies raise money through DPOs in India?
For now, any company that aspires to raise money from public markets and get listed on exchanges has to follow SEBI’s IPO listing guidelines and fulfil all compliance requirements. Direct listing is allowed only for demerging entities of already listed companies and those inviting participation only on the Institutional Trading Platform (ITP)—a segment that mainly caters to the start-up community.
IPO Vs DPO isn’t really a choice for companies raising capital in India at the moment but taking cues from the success stories of DPOs in developed markets, someday DPO might become a mainstream choice in India as well.
Advantages of DPO
IPO and DPO: difference
As of date, IPOs remain one of the most popular, trusted and impeccably regulated fundraising options.
On the other hand, the advantages of DPOs come with a lot of risk. First and foremost, since there is no underwriter to an issue, a DPO can completely flop on day 1, if there’s a tepid market response and prices plummet as a result.
In essence, DPO is a desired choice only for well-known brands operating in niche areas that are reasonably sure of their success on the day of debut. Slack and Spotify have been two DPO success stories of the recent past.
IPO Vs DPO: which one is better?
| Criterion | IPO | DPO |
|---|---|---|
| Flexibility to a listing entity | ❌ | ✔ |
| Time to launch an offer | ❌ | ✔ |
| Cost of fundraising | ❌ | ✔ |
| Suitability for large fundraising | ✔ | ❌ |
| Compliance | ✔ | ❌ |
| Safety to investors | ✔ | ❌ |
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