Quick question, should startups go public? According to StockAnalysis.com, there were 173 IPOs on the US stock market in 2022. As of December 2, 2022, this is -82.3% less than the same time in 2021, which had 976 IPOs by this date.
Going public is a major decision for any startup, and it has many potential benefits and drawbacks.
Before making the decision to take a company public, it’s important to understand what it is and what it entails.
What is an IPO?
An Initial Public Offering (IPO) is when a company offers its shares to the public for the first time. This allows a company to raise capital and attract new investors while increasing its market visibility.
Reasons why a startup might consider an IPO
Going public can be a great way to generate capital and get new investors on board.
It can also be a great way to increase visibility, credibility, and liquidity.
Additionally, it can help a startup to increase its market presence and attract more customers and partners.
As we discussed, there are upsides and downsides to going public.
Related: 7 Proven Ways To Market A Startup And See Results
Pros of Going Public
a. Access to Capital
Going public is a great way to raise capital and bring in new investors.
A company can generate large amounts of funds for its operations by selling shares to the public. This can be especially helpful for a startup that needs funds for expansion or new projects.
b. Increased Visibility and Credibility
Going public also increases a company’s visibility in the markets, which can be beneficial for attracting new customers and partners.
It can also help to boost the company’s credibility, as investors will be more confident in investing in a publicly traded company.
Cons of Going Public
x. Increased Scrutiny
Ah, yes! The dreaded third eyes!
Going public comes with increased scrutiny from regulators and the public. Companies must meet various reporting and compliance obligations, which can take up a lot of time and resources.
At the same time, companies must be prepared to face more intense public scrutiny, as investors will be warier of any potential issues.
x. Longer Timelines and More Paperwork
The process of taking your startup public can be lengthy and complicated.
Companies must go through a lot of paperwork and comply with various regulations, which can take up a lot of time. This can be especially difficult for a startup that may lack the resources or experience necessary to navigate the process.
Alternatives to Startup IPO
Assuming I don’t want to go this route, what other options do I have?
Well, here are some.
A. Mergers and Acquisitions
There are other options for startups that don’t want to go public. Mergers and acquisitions can provide a way for a company to raise capital without going public.
This can be a great way to expand a business without the hassle of meeting compliance obligations or dealing with intense public scrutiny.
B. Strategic Investors
Another option for startups is to bring in strategic investors. This can give a company the capital it needs to grow without going public.
Moreover, strategic investors can provide valuable advice and expertise to help a startup succeed.
Related: Funding for a Startup in India: Available Options
Considerations Before Taking Your Startup Public
Size and Scope of the Company
Before making the decision to go public, it’s important to consider the size and scope of the company.
Going public as a startup requires a lot of resources and effort, and it may not be the right choice for a small business.
Ensure the startup is ready to handle the cost and compliance of going public.
Ability to Handle the Cost and Compliance
Going public is a major decision that comes with many costs and compliance obligations.
A company must be prepared to handle the additional costs and paperwork associated with going public.
Again, the company must be prepared to face increased scrutiny from the public and regulators.
Related: Why Some Startups Succeed While Others Fail
Conclusion
Going public is a major decision for any startup, and it has many potential benefits and drawbacks.
Before making the decision to take a company public, it’s important to understand what it is and what it entails. Companies must weigh the potential benefits of going public, such as access to capital, increased visibility, and credibility, against the drawbacks, such as increased scrutiny, longer timelines, and more paperwork.
Additionally, startups should consider alternatives to going public, such as mergers and acquisitions or strategic investors.
Ultimately, the decision to go public should be based on the size and scope of the company and its ability to handle the cost and compliance of going public.