Can A Start-Up Go Public?

If you're an entrepreneur, you might be wondering if a start-up, or a private company for that matter, can go public. Let's get straight to the point. Going public means that you're allowing shares of your company to be publicly owned and traded, aiming to raise capital to expand.

There are several reasons for a company to choose to go public, but the ultimate goal is to take the business to the next level. As an owner of a startup, choosing to go public needs a surprising amount of preparation and thought. With that, we'll go over a few things you should consider when you're deciding to go public.

Considerations for Going Public

Going public is a big decision. But when you're ready, it can be an important step for your small business. Before you take the leap, make sure your company meets these four major requirements.

Size of the market - The market has to be big in order to stimulate the growth of the startup. Big markets bring high returns, and high returns lead to growth.

Predictability of the business model - Being predictable means being able to define the future of the company and the expected earnings. This is important since it builds confidence in the eyes of interested investors.

Uniqueness - This is largely to do with the product or service you offer. Is it a new way of doing something? Is it innovative? The more disruptive it is in the industry, the better.

Competition - Your startup needs to have an advantage compared to your competitors. This makes your company more valuable when you're getting your IPO (Initial public offering).

If you meet these stipulations, you can be a lot more confident about going public. But what are the next steps? It's important to know how to get your company on to the stock market and ready to trade.

How to Get a Startup Going Public

Once you decide to go public, now it's time to set the ball rolling. Interestingly, there is more than one way for a company to go public, and we'll briefly look at the three most popular methods for listing your startup.

1. Traditional IPO

This is when, as the owner, you seek advice from an investment bank about going public. The bank offers underwriting services, acting as a broker between the company and the public investors.

After approval, the effective date is set, and you decide on the offer price and the number of shares to be traded. Though it's the more costly option, it makes the entire process much easier.

2. Alternative Public Offering (APO)

Your startup can go public by acquiring a shell company, or a dormant publicly-traded company that lacks any assets or liabilities. This is referred to as a reverse merger and the joint entity would then trade in the private company's name.

This also includes a private investment of public equity (PIPE), which means that private investors get to negotiate and transact a share of the public company stock.

3. Direct Public Offering (DPO)

Another way is by offering shares directly to the public, avoiding the need for intermediaries like investment banks and broker-dealers. You might consider this if you don't want to alter existing shares or get caught up in deals and agreements.

Pros and Cons of Taking Your Startup Public

Getting your company on the trading floor is a long process that takes time. But in the end, you can reach new heights. Now that your company is open to input from the public and investors, there are a few key advantages.

• Raise capital - Once a company gets an IPO, the offerings rake in new capital for the company. This creates countless opportunities for the company to grow and improve.
• Public awareness - The company and its products get increased publicity. This boosts its market share, attracts great talent, and earns credibility.
• Exit strategy - Founders and initial investors who want to cash in for financial compensation have the opportunity through the stock market exchange.
• Stock can be used as currency - Once the company's stock can be publicly traded in the market, it can be used to make payments, especially during large acquisitions, or as an employee benefit.

While there are a lot of reasons why you should go public, we can't leave out the cons that come with it.

• Loss of Confidentiality - You'll need to fully disclose the company's status and provide financial statements to the general public. Your company loses confidentiality as its records are open to everyone.
• Expectations and market pressure - Investors constantly monitor management to meet quarterly return targets. This often causes a conflict of interest between executives with long-term vision and short-term, interest-driven investors.
• The surge in expenses - Taking your company public is expensive, as there are a number of fees, public reporting and compliance expenses, underwriters commission, etc.

Conclusion

Yes, a startup can go public. But remember that small businesses don't necessarily have to in order to be successful. It's depends on the owner's efforts and their management decisions. If you're considering going public, make sure your company can manage the expectations and financial weight that comes with it.