Why Would A Company Go Public Ipo

Why do private companies go public?

Money to further expand, a publicly traded currency (stock) with which to do acquisitions and a liquidity event for company insiders and investors.There’s a limited amount of money that a company can raise from private investors (VC’s in these cases) although that number has become astronomically large compared to a decade or two ago. But there is a limit. And those investors want to exit that investment at some point with a liquidity event. Sure they may be able to sell stock some on private exchanges or in a further round but that’s limited. VC’s want to get all of that money out at some point and that’s either through an IPO or a sale to another company.Now when another company wants to acquire your private company they can either pay you cash by having that cash sitting on its balance sheet because they’ve accumulated earnings or because they can raise capital by borrowing it in the form of debt if they’re private companies themselves. Large (and small) private companies do this all the time but they tend to have been around a long time. Younger private tech companies don’t tend to accumulate cash because investing it in R&D should result in higher yields than letting it sit around and it’s somewhat odd for a high growth tech company to be able to borrow much. The other option is for a publicly traded tech firm to use the cash it has raised from its IPO or secondary offerings to pay cash for that acquisition of the smaller (usually) private company OR it can use its publicly traded stock as the currency to make that acquisition. Facebook, for example, acquired Whatsapp for some ungodly amount like $19B but most of that was using FB stock as the currency rather than cash. FB didn’t have to have $19B of cash on its balance sheet, it didn’t have to do a secondary equity offering to raise that $19B, it just created $18B in new stock and paid $1B in cash (it was something like that, someone correct me if I’m wrong). Yes, it dilutes the publicly traded company’s existing shareholders but don’t mind as long as the acquisition is accretive to the share price and/or earnings over time.There are a few other legal reasons to go public like once you have X different investors in a private company you’re considered a public company and need to start reporting to the SEC regardless of if you actually did an IPO but those are the main financial and operational reasons.

Why would a company go public without issuing an IPO?

Raising money through equity is not free, it is dilutive. Therefore, entrepreneurs should calibrate each and every round of funding to the risk they want to eliminate. The closest the amount raised is from the amount needed, they less dilution they get (so the more ownership they conserve).This approach is a more robust way to think about how to raise and spend money than “let me raised the more money I can so I can spend it on everything”.Raising money through an IPO is also really expensive: the value the IPO investor gets is much lower than the “real” valuation (you need to discount so the offer is entirely subscribed - and other reasons). Look at the recent Snap Inc IPO: they raised money on a $17/share valuation when it first traded at $24.48.They apparently don’t need cash in, but they want to provide liquidity to their shareholder (external and internal).There are also “strategic” reasons for a company to go public:having a continuous, market-based valuation (private companies undertake valuations only in case of equity event),lowering the cost of capital (in some cases, illiquidity discounts are applied to private companies),raising additional capital and diversifying the shareholder’s base,lowering the perceived counterparty risk: making business with a publicly traded company is seen as less risky than an “obscure” startup (brings in more “credibility”),“encouraging transparency”: being a public company comes with a set of rules and expectations about reporting that translate into the company’s own organization (i used brackets because transparency can be heavily managed: we still don’t know how many Prime members Amazon have etc.),generating coverage: public companies (less true for SMID caps) will be covered by financial analysts and will have more opportunities to explain and narrate their stories.

Why should a company go public at all? What is "wrong" about companies such as Facebook remaining private?

Nothing "wrong" with that at all. In fact I think it would be pretty badass if a high-profile technology company (Uber?) did precisely that. And for the record, there are a few enormous companies of great scale that continue to be closely held (Cargill and Koch Industries are both >$100B in revenues... see more examples here).However there are a few challenges therein:If options and shares have been distributed to many employees (as is the case with many technology companies), there will be pressure from employees to obtain liquidity.If lots of investors own shares in the company, they would also like to achieve an exit at some point.If the private fundraising market cools down and a company is operating at negative cashflows and can't generate much interest from private investors, they might feel compelled to IPO for fundraising reasons. (Basically this would be the inverse of the current way of the world, but who knows?)Egos matter, and there's a subset of executives who really want to be "executives at a publicly traded company", for whatever reason. There's also a sense of accomplishment that comes with IPOing... ding ding ding, we did it!Despite all that: It's becoming increasingly easy to achieve liquidity while a company is private (via secondary purchases and marketplaces), which lessens the pressure of the first two bullet points over time. If this trend continues, the traditional consequences of being a private vs public company may change, and the finance world might end up looking very different in a few decades.

What does it mean for a company to go public?

Going public refers to a private company's initial public offering (IPO), thus becoming a publicly traded and owned entity. Businesses usually go public to raise capital in hopes of expanding; venture capitalists may use IPOs as an exit strategy - that is, a way of getting out of their investment in a company.The IPO process begins with contacting an investment bank and making certain decisions, such as the number and price of the shares that will be issued. Investment banks take on the task of underwriting or becoming owners of the shares and assuming legal responsibility for them. The goal of the underwriter is to sell the shares to the public for more than what was paid to the original owners of the company. Deals between investment banks and issuing companies can be valued at hundreds of millions of dollars, some even hitting $1 billion.Going public does have positive and negative effects, which companies must consider. Here are a few of them:Advantages - Strengthens capital base, makes acqusitions easier, diversifies ownership, and increases prestige.Disadvantages - Puts pressure on short-term growth, increases costs, imposes more restrictions on management and on trading, forces disclosure to the public, and makes former business owners lose control of decision making.For some entrepreneurs taking a company public is the ultimate dream and mark of success (usually because there is a large payout). However, before an IPO can even be discussed, a company must meet requirements laid out by the underwriters. Here are some characteristics that may qualify a company for an IPO:High growth prospectsInnovative product or serviceCompetitive in industryAble to meet financial audit requirementsSome underwriters require revenues of approximately $10-$20 million per year with profits around $1 million! Not only that, but management teams should show future growth rates of about 25% per year in a five- to seven-year span. While there are exceptions to the requirements, there is no doubt over how much hard work entrepreneurs must put in before they collect the big rewards of an IPO.SOURCE-INVESTOPEDIA

What does it mean a company going IPO?

IPO : initial public offering or stock market launch is a type of public offer where shares of stock in a company are sold to the general public, on a security exchange, for the first time.Initially any company is owned by its cofounders and angel investors (if any). At that time company is said to be "privately owned". As general public doesn't get a chance chance to own even a small share of company. But as companies grow and they need more money for investment and the way they go about it is by making shares of their company public or so called "going public". E.g. Facebook (product) went public last year. So at that moment shares of that company are made available at one of the stock exchanges, say NASDAQ, and general public gets a chance to buy shares of that company at a pre-decided rate by the company. This initial offering by any company is called Initial Public Offering or IPO.

Why some private companies do not go for an IPO?

In the first place, whose perspective does this question actually represent? The company itself, its present owners, or its prospective buyers? Remember that, once the company goes through an IPO, it’s not the same company it was when the decision was made to undertake it.Perhaps the best reason for a comp;any not to go through an IPO is that it conveys control of the company from it’s owner(s) who are intimate with it and have gone through its growing pains, to a new and different kind of an owner.Because intelligent investors don’t gamble, they will not bet their money on a startup that hasn’t proven itself. They’re interested in the long-term welfare of the companies they buy shares in. And, they will look only at companies who have been publicly owned for at least five years and which enjoy annual revenues of no less than $50 million—better: at least $100 million. Intelligent investors buy companies to own them. And they don’t take the risks of the unpredictable IPO.Those who typically buy IPOs are neophytes or even institutional gamblers who are charmed by the story—the hype—and are buying the company to sell it. They hope that the story comes true so that someone will want to pay more for it than they do. Labor Department statistics have shown that somewhere around 80% of startups fail. So if you’re gambling, the odds aren’t very favorable!If the company has been founded with the notion of creating an exit strategy—which so many are in today’s world—then most of the decisions, including the decision to go public with an IPO—will have been made by speculators. And the decision benefits the seller; but not the buyer, who is the new owner of the company.

How does a company decide when to make an IPO?

According to TechRepublic.com it has to do with Margins and Growth. Gross Margin is Revenue minus cost. I am quoting all of this from this website. As you know, there are many failed IPO's. As clients, people are happy when their brokers offer them the IPO's, especially if they end up doing WELL (as in the case of Microsoft which my friend made out well on buying a Porsche', 3 homes, etc.) But, there are only so many shares to go around. The Stock Exchange wants the IPO to do well. It costs the company hundreds of thousands of dollars to prepare for an IPO. The stock exchange expects a company to have better earnings the next year. There is a lot of money to RAIN DOWN on the Creators and Employees of the company when the company goes public. So, it brings funds to the company to further grow the company. Please go to TechRepublic.com. Or Inc.com and type in the question, When does a company decide to become an IPO? for the full details.