Going public by launching an initial public offering (IPO) can be a major milestone and opportunity for growth. However, it also comes with trade-offs to weigh carefully.
Potential Benefits of an IPO: The Pros of Going Public
- Raising capital – The IPO itself brings in funds, and being publicly traded opens access to capital through future stock sales. This capital can fuel expansions.
- Employee incentives – Public companies can offer stock options and equity compensation to attract and retain talent. Employees have a stake in the company’s success.
- Enhanced visibility – The IPO process generates publicity and exposure. Being public carries prestige and expands partnership opportunities.
For example, a young tech startup may use IPO capital to acquire competitors, hire engineers with stock options, and gain brand visibility with consumers.
Potential Drawbacks of an IPO: The Cons of Going Public
- Loss of control – Selling stock means sharing control with new shareholders. This can lead to short-term thinking and pressure from activist investors.
- Increased disclosure – Public companies face extensive financial and operational disclosure requirements, reducing secrecy.
- Complex and expensive process – Preparing for an IPO requires substantial legal, accounting, underwriting and other costs. It also takes management focus away from operations.
For instance, a founder-led firm may wish to retain decision-making control and not have to disclose proprietary details or strategies.
Key Considerations
The decision of whether, when and how to go public is complex. Leaders should weigh factors like their need for capital, desire for liquidity, openness to transparency, and willingness to share control. Being thoroughly prepared and guided by strategic advisors can lead to a successful IPO.