An Initial Public Offering (IPO) is a dream of many smaller businesses, but remains a mystery to the majority of business owners. It is critical to plan, prepare, and evaluate your chances of success before spending time and money. First, ask why you want to have an IPO and what is your goal? There are other sources of cash and investment that allow your company to remain private. Examine all options before creating your IPO strategy.
Going Public
The temptations to become a public company can be strong. An influx of thousands -- or millions -- of new dollars is a potent magnet. However, for every smashing success story, like Google, which raised millions and watched its stock price soar, there are lesser-known companies that suffer grave disappointment as the market is not friendly to their IPO. Offering your stock to the investment community necessitates a major change from managing a private firm, with no obligation to share your financial, operations and human resources data with the world.
Considerations
Along with the cost of preparing your company for an IPO, the reasons for your interest determine your strategy. For example, if your only purpose is raising cash, you may find other less costly investment or financing that keeps your firm private. You must carefully weigh the pros and cons of going public. Keeping control, managing "your way," and growing your business dramatically, while enjoying new cash from an IPO are considerations. Downsides include costs to prepare for and implement the IPO, ongoing additional expenses for Securities Exchange Commission (SEC) regulatory requirements, and losing control of those who own your stock.
IPO Alternative
Strategic partnering is often a good IPO alternative to raise cash, access expert assistance, and maintaining control of your company. Investment firms and other high-functioning companies may have interest in becoming your "partner" to grow your business and increase your bottom line. Even the investment dollars you receive are typically long-term, with your strategic partner more interested in steady growth, not fast stock buy-sell profits. This arrangement often brings the new cash you need and acts as a stabilizing influence on your operations and growth.
Strategy Components
IPOs require relentless planning and evaluation. While the choice of a strategy is yours, you must incorporate the primary IPO components. The planning function involves structuring your company to focus on its strengths and preparing it for critical outside scrutiny. Like preparing your home for sale, you must "clean up" and showcase your business. Get the best expert help and advice you can afford. Retain people and firms with IPO experience to help you create a winning strategy. Finally, entice an experienced investment firm to "underwrite" your IPO. Evaluating the market appetite for your securities, setting your initial stock price, and generating investor interest before the IPO date is a critical component to a successful going-public experience.
