IPO or Initial Public Offering is the process by which unlisted companies launch initial shares of their company to the public in order to raise funds. It is done by selling those shares and getting listed in the stock exchange. Actually, apart from the procedure of IPO, companies can also raise funds by other techniques including acquisition. But is IPO considered as the best way for the company to raise funds? But the truth is – ‘it is the best way’.
Vedant Goel, Director of www.ipocorner.in says, “Launching an IPO for a company isn’t just a way of raising money, but it is also a proof that the company has met certain standards of high corporate governance, a transparency in finances and a responsible leadership.”
From an investor’s perspective, IPO is always a glamorous investment option, as it generally yields very high returns, but it should be a long term investment. And from company’s point of view, IPOs can produce a maximum valuation, which is one of the reason that why IPO is considered to be good.
How IPO is the Best Way for Raising Funds?
If you are reading above that IPOs are considered to be the best way to raise funds for the company, then you must also know few reasons behind it. There are few advantages from a company’s perspective which can provide light to the point that ‘how IPOs are considered to be the best way for raising funds?’ Let’s begin!
- Finance – The main reason behind the launch of any IPO is to raise an amount of money which has no boundation of repayment. With IPOs, companies do not have to part with the existing capital for securing ownership. That’s a good point!
- Follow-on Financing – This is also a main advantage for IPO listing. If needed, a company can raise more funds by just issuing additional stocks in the secondary offering. Therefore, it can be said that with IPO, companies can open a second door for easily raising funds in a second round, if needed.
- Prior Investment can be realized – That’s true! After an IPO listing has been done, the shareholders know the real value of their investment. As stocks are considered liquid, shareholders can sell the stocks once the lock up period of the IPO is over. In this way, prior investments of the company can be realized.
- Visibility and Prestige – Once a company gets listed in the stock exchange after the release of its IPO, it’s more visible to the shareholders or investors and as a result, the company gains more prestige. This is helpful for the company in better marketing of their products and services and increasing the sales, hiring employees, outsourcing works and banking.
- Employee Compensation – A public listed company can provide stock benefits to the employees. When an employee is offered stock as compensation to the employee, it is beneficial for both the parties.
- Acquisition of Other Companies – After the IPO issuance and company listing has been done, the company becomes a public company. Now, a public company can anytime acquire other company with the help of its shares. In a way, the company can go for a consumer base expansion or go into capturing consumer base by acquiring other similar or smaller firms.
What do you think now? IPO isn’t only the way to raise funds. It is considered as the best way to raise funds because within that context, launching an IPO provides these extra added benefits or advantages to the company.
Conclusion
You must have understood till now that how beneficial it is for a company to launch its IPO and go public. If a company is still not listed and is looking for some sources to raise funds, it should always consider IPO as the best option. However, there are some things to consider when a company plans to go public. For example, a company should have consistent revenue, an ability to predict future earnings, a low debt-to-equity ratio, a diverse product or service offers, diverse customer base and much more. Going public should not be a one man decision. You need to put a lot of work into your business and before taking your business to the next level, i.e. taking any decision or planning for an IPO launch, try to discuss it with your professional business consultant or with your board of directors.
