Shareholders do not immediately receive liquidity from the proceeds of an IPO. As stated in the previous paragraph, initial public offerings often raise nearly $100 million (or even more), which makes them very attractive to founders and investors who often feel that it is time to receive financial compensation for years of “sweat equity 1.” It is, however, important to note that in order for founders and investors to receive liquidity from an IPO, they will have to sell their shares of the now-public company on a secondary exchange 2 (e.g., New York Stock Exchange). These founders and investors often go for years without seeing any significant financial return on their contributions. An initial public offering is a significant exit opportunity for stakeholders, whereby they can potentially receive massive amounts of money, or, at the very least, liquefy the capital they currently have tied up in the company. Exit opportunityĮvery company has stakeholders who have contributed significant amounts of time, money, and resources with the hopes of creating a successful company. The money provided by an IPO is significant, and can transform the growth trajectory of a company. Companies may use an initial public offering to finance research and development, hire new employees, build buildings, reduce debt, fund capital expenditure, acquire new technology or other companies, or to bankroll any number of other possibilities. These funds can benefit a growing company in countless ways. The proceeds from an IPO provide ample justification for many companies to go public even without looking at the other benefits, especially considering the many investment opportunities available because of the new capital. In 2016, the median proceeds received from an initial public offering were $94.5 million, and many offerings bring in hundreds of millions of dollars. For example, in 2016, the largest IPO-ZTO Express-netted $1.4 billion. The most often cited advantage of an initial public offering is money. This article will discuss the advantages and disadvantages that you should consider when you are thinking about an initial public offering. Although many people believe that every successful company is public, there are many private companies that are also thriving, such as Dell, Cargill, and Koch Industries. While an IPO is a worthy objective with many potential benefits, there are also many risks and disadvantages associated with going public, and thus, an IPO may not be suitable for every company. Founders, investors, and public observers often wonder, “When will this company IPO?”, “What will this company’s stock price be when they eventually IPO?”, and “Why hasn’t this company completed an IPO yet?” You may have been asked some of these questions about your own company. An initial public offering (IPO) seems to be the de facto goal of many startup companies.