What Is the Difference Between IPO & VC Stocks?

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IPO and VC stock transactions have different purposes.
IPO and VC stock transactions have different purposes. (Image: stock image by Michael Shake from Fotolia.com)

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.

IPO

An initial public offering, or IPO, occurs when a company begins to sell its common stock to large investors or the general public.

VC

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.

Purpose

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.

Disposition

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.

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