Our friends over at Napkin Finance are giving us the ins and outs of IPOs:
What is an IPO?
IPO stands for Initial Public Offering. When shares of a company are first sold to the public AKA “going public”
Why go public?
Here are just a few of the reasons going public may be a good exit for your startup:
- Raise cash
- Attract awareness and interest
- Gain credibility
- Increase liquidity (easier to sell or convert ownership into cash)
- Attract top talent
IPOs are highly anticipated for both investors, who see growth and want to invest and for the companies owners, who will get a payout for giving up a piece of the business.
Private VS Public Companies
- Shares sold on exchange to outside investors
- Stock traded on an exchange
- Company financials are public
- Must file with SEC (the securities and exchange commission) and comply with regulations
- Majority are owned by founders, family, or key employees
- Stock not for sale to general public
- Company financial information private
- More flexibility and maneuverability with less regulation
How to get ready for an IPO
- Hire a brokerage firm
- Meet with investment banks
- Secure top-notch talent for company and board
- Meet with public investors to promote business to research analysts
- Make sure financials projections are reasonable
- Facebook initials IPO price was at $38 per share, but the stock fell as soon as it opened and now it’s worth over $100!
- The largest IPO on record was Alibaba, which was valued at $25 billion in 2014.