What is an IPO?
The term IPO stands for Initial Public Offering. The public can gain access to a company via an IPO when it initially starts selling shares in the market. The goal of an IPO is to raise money that can go towards funding the company’s future growth, through multiple rounds of financing including the IPO itself.
The methods related to IPO investing are not well known among the general public so they’d much rather spend their time looking up today’s gold rate in Tamil Nadu or Karnataka and then invest in gold. Check out for more info. However, if you also are not sure we have made a quick comparison of the advantages and disadvantages of IPO offerings so that you may decide to learn more about it:
Advantages of an IPO
The following are some of the potential advantages that your company could obtain by completing an IPO:
- Access to Liquidity
By selling shares to the public, your company can create a liquid market for its stock, and thus, cash in on its investments. Current investors can sell some or all of their shares to the public, which provides them with liquidity and a return on their investment. This can also help attract new investors to your company.
- Increased capital
The most obvious advantage of going public is being able to raise more capital. If you are able to raise capital through private offerings (through friends, family, or venture capitalists), then you may not need to go public. However, if you cannot raise sufficient capital privately, then going public may be your only option. Also, an IPO may allow you to access more potential investors than what is available in the private market.
- Improving Credibility
By going public, your company will receive increased attention from investors, analysts and the media. In addition, becoming a publicly-traded company may provide you with additional leverage over competitors and other counterparts who may not have access to the same level of financial resources. Hence unlike gold where you can look up today’s gold rate in Pondicherry and still not have a clue as to where the price is going to move with IPO offerings your investors will actually give a hint to your potential investors about the financial health of your company.
- Retain Talent
An IPO may allow you to attract new talent with equity participation programs that give employees stock options or restricted stock units as part of their compensation plan. You may also be able to retain current talent by giving them equity incentives.
Disadvantages of investing in IPO
- Secrecy Loss
Once you go public, you become subject to very strict regulations about what information can be released and when. You will also have lots of people asking you questions about how the business is doing and what the future holds. This makes it difficult to hide a new product or service in the development and can cause competitors to change their plans before you launch.
The time and effort involved in going public are enormous. The paperwork alone is enough to make your head spin. It takes a ton of management time, which takes away from building great products and services for your customers. If your company gets big enough, it may become necessary at some point, but that should be driven by the needs of the business, not by the personal financial goals of the founders or investors.
- Regulatory Burden and Cost
Going public means complying with all sorts of regulations, filing quarterly reports, having your books audited, etc. This costs money. Some rules can also crimp your style in ways that make you less competitive. For example, you might be prevented from making small acquisitions or hiring people quickly because you can’t make announcements without first getting regulatory approval.
- Possible Down Round
The obvious reason not to go public is to avoid a down round (when the valuation at IPO is less than that of previous financing rounds). One way this happens is when there are too many shares offered in relation to the demand.