How to Answer “What’s the difference between a follow-on offering and a secondary offering?” in Investment Banking Interviews
In investment banking interview prep, one common ECM question is: “What’s the difference between a follow-on offering and a secondary offering?” Interviewers aren’t looking for legal nuance—they want a clean, analyst-level distinction you can apply to a deal headline.
A strong answer separates who is selling the shares (the company vs existing shareholders), whether new shares are issued, and the impact on proceeds and dilution. If you can state that quickly and then add one example, you’ll sound fluent in core investment banking concepts.
What Interviewers Look For in ECM Technical Questions
First, they’re testing whether you can give a precise definition under time pressure—the same skill you need when you’re reading a press release or drafting a short market update. This is why the best investment banking interview answers lead with a one-sentence distinction.
Second, they want to see if you understand economics and implications: where the cash goes (company vs selling shareholders), whether the share count changes (dilution), and how each structure is positioned to the market (fundraising vs monetisation / liquidity).
Finally, they’re assessing whether you can handle common ambiguity in investment banking technical questions. In practice, “follow-on” is sometimes used as an umbrella term for a seasoned equity offering that may include primary shares, secondary shares, or a mix—so strong candidates clarify that nuance without overcomplicating it.
Follow-On vs Secondary Offering Interview Question: Answer Framework
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Step 1: Give the core distinction (primary vs secondary shares)
Start with the simplest axis: are new shares being issued by the company, or are existing shares being sold by shareholders?
- A follow-on offering (often called a seasoned equity offering) typically means the company is raising additional equity after the IPO. In many interview contexts, that implies a primary issuance—new shares sold to investors.
- A secondary offering is the sale of existing shares by current shareholders (founders, PE sponsor, insiders), with no new shares issued.
Deliver this as a crisp two-liner. That’s your “follow-on offering explanation” and “secondary offering definition” in interview language: who sells, and whether shares are newly created.
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Step 2: Map proceeds, dilution, and share count (the analyst checklist)
Immediately translate the definitions into consequences—this is what makes the answer practical.
- Proceeds: In a primary / follow-on, proceeds go to the company (fund growth, pay down debt, improve liquidity). In a secondary, proceeds go to the selling shareholders.
- Share count & dilution: Primary shares increase shares outstanding, so existing holders are typically diluted (all else equal). Secondary shares generally do not change total shares outstanding, so there’s typically no dilution, although there can be price pressure from added float.
- Ownership: Secondary reduces the seller’s stake; primary reduces everyone’s percentage ownership proportionally.
If you say these three points clearly, you’ve shown you can apply the concept to valuation, cap table work, and quick market commentary.
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Step 3: Address the real-world nuance (mixed deals and terminology)
Add one sentence of nuance to show maturity without derailing the answer:
- In market usage, a follow-on can be used broadly to mean any post-IPO equity offering, which can include primary shares, secondary shares, or a combined offering.
So you can clarify: “If you mean a purely secondary follow-on, it’s still a follow-on in timing, but it’s secondary in source of shares.” This is often what interviewers are getting at with the follow-on vs secondary offering interview question.
Optional but helpful: mention that combined offerings are common when a company raises capital and a sponsor/insider monetises part of their position in the same transaction.
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Step 4: Close with a quick example + sanity check
Finish with a short example you can “say out loud”:
- Example: “If Company X issues 20m new shares to fund an acquisition, that’s a follow-on/primary—cash goes to the company and the share count increases.”
- Example: “If a PE sponsor sells 20m of its existing shares, that’s a secondary—cash goes to the sponsor and shares outstanding stay the same.”
Sanity check: you’re done when you’ve answered (1) who receives the cash, and (2) whether existing shareholders are diluted. That’s how to differentiate follow-on and secondary offerings in interviews without getting lost in jargon.
Analyst-Ready Investment Banking Interview Answer
A follow-on offering is a post-IPO equity raise where the company sells stock again—typically meaning newly issued primary shares, so the company receives the proceeds and shares outstanding increase, creating dilution.
A secondary offering is different because existing shareholders—like founders or a PE sponsor—sell their existing shares to the public. In that case the selling shareholders receive the proceeds, and shares outstanding usually don’t change, so there’s typically no dilution (though increased float can affect the stock).
In practice, the terminology can overlap: people sometimes call any seasoned equity deal a “follow-on,” and it can be primary, secondary, or a mix. When I’m reading a deal announcement, I anchor on two checks: who is selling and does the share count go up. If it’s the company issuing new shares, it’s effectively a follow-on/primary raise; if it’s insiders selling existing shares, it’s a secondary.
- Lead with the one-sentence distinction: new shares (primary) vs existing shares (secondary).
- Always state proceeds recipient and dilution impact—those are the scoring points.
- Add one line on real-world overlap: follow-on can include primary, secondary, or both.
- Use a quick “two checks” rule to sound practical: seller + share count.
Common Pitfalls in Follow-On Offering Explanations
- Treating “follow-on” and “secondary” as mutually exclusive in all cases; in real deals, a follow-on can include secondary shares or be combined.
- Forgetting to say where the proceeds go (company vs selling shareholders), which is often the main point of the question.
- Not mentioning dilution/share count changes—an analyst should connect structure to ownership math.
- Over-explaining legal/regulatory detail instead of giving an interview-ready definition and implications.
- Saying “secondary is always bad” or making blanket claims about price impact; keep it conditional and mechanism-based.
- Ignoring that secondary offerings can increase float and liquidity even without dilution, which is a key practical nuance.
Follow-Ups: Secondary Offering Definition and Deal Nuances
Can a follow-on offering be 100% secondary?
Yes. “Follow-on” can describe timing (post-IPO), while “secondary” describes the source of shares; some follow-ons are entirely selling shareholder shares.
What happens to EPS and ownership in a primary follow-on?
Shares outstanding increase, so ownership percentages are diluted; EPS can be diluted unless proceeds generate enough incremental earnings to offset the higher share count.
Why would a company do a follow-on instead of issuing debt?
Equity can reduce leverage and interest burden and may be preferred if the stock is trading strongly, whereas debt adds fixed obligations and covenant constraints.
How does a secondary offering affect the company’s balance sheet?
It usually doesn’t—cash goes to the selling holders, so the company’s cash and debt levels typically remain unchanged.
What’s a combined primary and secondary offering?
It’s one transaction where the company issues new shares to raise capital and existing shareholders sell some of their shares at the same time.
Best Practices for Answering Follow-On vs Secondary Offerings
- Record a 45–60 second version that hits: seller, proceeds, share count/dilution, nuance that follow-on can be mixed.
- Drill two mini-examples (one primary, one secondary) so you can answer without pausing.
- Practice handling ambiguity: answer, then add “In practice, follow-on can include primary/secondary/both.”
- In AceTheRound, run this as a rapid-fire prompt and ask for feedback specifically on clarity and missing implications.
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