Question

You know the process of due diligence both in IPO and VC funding. What are the critical differences between these two?

Answer 1

When companies go for IPO, it Is the company which has to do a lot of due diligence to make sure that the IPO is successful and brings the cash flow to the company whereas when the VC funding happens it is generally prior to the IPO and at early stage of the business life where the company needs funds. There are critical differences between these two as during the IPO process a lot of due diligence is from the legal standpoint as before listing your stocks you have to meet the regulatory norms of the stock exchange as well as the capital market regulator and the company also has to make sure that the pricing of the IPO is such where the value of the stock is maximum and yet the demand is high in order to be able to achieve the subscribed share percentage. The VC funding on the other hand is more form the perspective of the venture capital firm where the VC investors tries to value the company as to how much it can grow in future depending on industry, innovation, overall market and many other things. The VC investors would also like to buy equity stake in the firm at reasonable price in order to gain from it when the companies go public the price is high. So, the VC investors are more concerned from the valuation of firm perspective and reasonable price at which they are able to buy equity stake.