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.
As an enthusiast deeply entrenched in the realm of financial markets and corporate strategies, I find the dynamics of Initial Public Offerings (IPOs) to be a fascinating and crucial facet of modern business. My extensive experience in financial analysis and market trends allows me to articulate the evidence supporting the assertion that IPOs are indeed one of the most effective methods for companies to raise funds.
Vedant Goel's insight, as the Director of www.ipocorner.in, underscores the multifaceted nature of IPOs. He emphasizes that an IPO is not merely a financial maneuver but serves as a testament to a company's commitment to high corporate governance, financial transparency, and responsible leadership. This aligns with my firsthand observations of how IPOs act as a litmus test for companies aspiring to meet and maintain rigorous standards.
From an investor's perspective, the allure of IPOs lies in their potential for substantial returns, making them a glamorous investment option. However, it's crucial to note that such investments should be approached with a long-term mindset, a sentiment echoed by industry experts.
Now, delving into the concepts elucidated in the provided article:
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Finance as a Primary Motive: The central purpose of an IPO is to raise capital without the burden of repayment. This allows companies to acquire funds without diluting their existing capital, a distinct advantage that IPOs offer.
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Follow-on Financing: The article rightly highlights the advantage of follow-on financing. After the IPO, companies can issue additional stocks in secondary offerings, providing them with an additional avenue to raise funds when needed.
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Realization of Prior Investments: IPOs offer liquidity to existing shareholders, allowing them to sell stocks once the lock-up period expires. This liquidity facilitates the realization of prior investments, a significant benefit for investors.
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Visibility and Prestige: Going public through an IPO enhances a company's visibility, thereby attracting more attention from shareholders and investors. This heightened visibility contributes to increased prestige, which, in turn, aids in marketing products, attracting talent, outsourcing, and establishing banking relationships.
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Employee Compensation: A public listing enables companies to provide stock benefits to employees, creating a mutually beneficial arrangement. Employees, in turn, become stakeholders in the company's success.
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Acquisition Opportunities: Post-IPO, a company gains the ability to acquire other firms using its shares, fostering consumer base expansion or capturing new markets. This strategic advantage is a pivotal aspect of the long-term benefits of going public.
In conclusion, the comprehensive overview provided in the article underscores the manifold advantages of IPOs for companies seeking to raise funds. However, it wisely advises that the decision to go public should be a well-considered one, with factors such as consistent revenue, future earnings predictability, a low debt-to-equity ratio, and diverse product or service offerings taken into account. Professional consultation and collaboration with a board of directors are emphasized as integral steps in this significant business undertaking.
