An IPO, or initial public offering, and VC, or venture capital, refer to stock investment and cash generation methods, but are specifically different in their purposes and end results.
An initial public offering, or IPO, occurs when a company begins to sell its common stock to large investors or the general public.
A venture capital, or VC, stock transaction occurs when a private company seeks investment from other private companies or individuals, and offers company stock only to those investors.
An IPO may be used when the company no longer wishes to be held privately, wants to expand, or wants to offer the ability to make money by holding stock. On the other hand, a VC stock transaction occurs generally where a new business needs cash to get started. VC investors look for the money making potential in new businesses and products.
An initial public offering is generally the last step; that is, the stock is offered and purchased by investors, and then the company becomes publicly held. Venture capital exchanges may be the first step in a company becoming public. For example, after a while, the company with VC investors may decide to go public with an IPO.
VC Stock Conversion
VC stock is usually sold as convertible preferred stock, which means that a VC investor can convert stock into common stock at any time. Also, an IPO would convert VC stock into common stock.
- Microsoft.com: What Can an IPO Do For Your Business?
- All Business.com: Venture Capital Stock Purchase Agreements
- American Enterprise Institute. "The Stock Market in 100-Year Perspective." Accessed March 13, 2020.
- Federal Reserve Bank of San Francisco. "What Are Business Cycles and How Do They Affect the Economy?" Accessed March 13, 2020.
- NBER. "Herd Mentality Takes Over in Market Crisis." Accessed March 13, 2020.
Chris Amisano began writing professionally in 2005, and his freelance work has appeared in "PennyCents Magazine," "The ACUTA Journal" and "Career Focus Magazine." Amisano holds an Associate of Science in aviation management from Everglades University and a Bachelor of Arts in Spanish from the University of Memphis. He is pursuing his Master of Business Administration with a concentration in human resources management at Bellevue University.