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What You Need to Know for a Successful IPO

Oct 31, 2019 | 14m

Gain Actionable Insights Into:

  • Why you should raise capital when you least need it
  • Systems you’ll need to have in place as you plan an IPO
  • How the digital disruption is affecting valuations


To IPO or Not to IPO

So you’re wondering whether it’s the right time for your business to get publicly listed. Before you get into the how’s, think about whether an IPO is even the right direction for you. Here are a few elements you should consider.

First, are you looking to raise capital? Are you looking to provide a liquid platform for your shareholders to buy and sell shares? Are you also looking to take some capital off the table? If your answer is a yes, then an IPO may be for you.

Second, is your management prepared to provide more predictability and visibility on a quarterly basis as opposed to on a three year cycle basis that’s typical in a private company? If you’re unable to commit to that level of predictability and visibility in the shorter horizon, you shouldn’t be going for an IPO.

Third, is your business using stock as a way to attract and retain talent? For instance, building stock option plans that you’ll then distribute within the business. Does being listed provide incentive for people to be a part of your business and want to work with you?

Lastly, think about the level of transparency that you’ll need to have as a business when you go public. Be it credit rating agencies, banks, financial institutions, or even government regulators, all eyes will be on you, but this doesn’t have to be a bad thing. You just need to be prepared to be closely scrutinised by the larger financial community.

If you can look at each of the above questions and your answer to them is a clear yes, you’re ready to take your company public.

Is an IPO For You?

If your business needs to raise capital every few years, you should look into IPOs. Once you’ve gone public, the timelines are much shorter. You could raise fresh capital in three months, if you’ve got your professional augments such as QIB (Qualified Institutional Buyer) in order. As a listed company, people have a better understanding of what you do, the education and verification process is therefore much shorter.

The financial services business is a great example. Their raw material is capital, so every few years they need to raise capital to grow their businesses. Similarly, infrastructure businesses’ raw material is also capital and the availability of infrastructure projects.

Obviously, the market is evolving and getting more sophisticated. There are ways to raise capital beyond just an IPO. There is certainly a cost associated with IPOs. However, the benefits include market reach, access, and liquidity.

There’s an ongoing debate that a lot of tech companies that aren’t profitable continue to raise capital from private markets. Private markets in turn raise money from pension funds and private investors to invest in private companies. The size of the pie is getting much larger. The imperative for such companies to IPO is not as great as compared to earlier, where VC companies provided small amounts of capital but the public market was where you went to raise large capital.

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