Why companies need an IPO

IPO (initial public offering or initial public offering) is the process when a company goes public when it ceases to be private and offers investors to buy shares of the company. This is how a company attracts investments for business development, implementation of new technologies and equipment purchases. Why companies need an IPO. Read more about the IPO here.

How do companies go public?

Going public is a resource-intensive process which can take up to two years. To go public, a company must be competitive, have a business plan and the potential to operate in other markets. In addition, there are several other characteristics that an organization must have in order to go public:

– stable revenues with a proven financial track record;

– ability to predict future earnings;

– no or very little debt/loan;

– a confident management team that motivates and manages the team well.

If a company has all these characteristics, it can start preparing for its IPO. There are several steps involved in preparing and going public. 

1. Selecting the underwriter (the bank that accompanies the company on the IPO) 

Underwriters are the first to buy the company’s shares before the IPO and make money on the difference of the pre-IPO and post-IPO price. They negotiate with the company, determine the amount of investment required, assist in the preparation of financial statements and submit the documentation to the regulatory authorities.   

2. Conducting an advertising campaign (road show) 

At this stage, the company makes a presentation to major investors and invites them to buy shares before the IPO. During the presentation, investors will learn about the company’s financial performance, development strategy, management, and team of specialists.  

3. Stock offering 

If all is in order with the documentation of the company, the IPO date is set and the shares are offered on the stock exchange, where they can be purchased by anyone.

5 reasons why companies need an IPO

Why companies need an IPO

1. Attracting investment

IPO helps to attract multimillion dollar investments and use them to expand business or develop new projects. An example of this is Zoom, a company that provides users with a cloud-based video calling service. In April 2019, it successfully went public and raised $11.5 million in an IPO.

2. Increased visibility and competitiveness

When a company goes public and goes public, it announces itself to the world. Investors, banks and competitors find out about the company as a result of which the number of clients and partners may be increased. Investopedia(an international financial website) notes that customers perceive companies that are listed on the stock exchange better.

3. Improving credit credibility

Before an IPO, financial records are thoroughly reviewed and made publicly available, which increases banks’ confidence in the organization.

4. Increased value

The profits from the IPO come into the company’s account, thus increasing its value and increasing its internal capital.

5. Attracting and retaining the best talent

The company becomes public, it is talked about in the press, the growth of the stock is watched. These factors help to use publicity to lure and attract the best talent.

To retain employees, management can reward specialists with shares, make them co-founders, offer bonuses as an incentive or write the terms of an asset award in the employment contract.

What is the benefit for investor

Investing in IPO is an opportunity for investors to get the maximum income with a minimum investment. In addition, the investor can participate in the management of the company, receive dividends (a percentage of profits) and be at the origin of a successful start-up. 

But it is important to keep in mind the risks, for example, the investment may not pay off, the company will be taken off the stock exchange for violations or fraud, the value of assets will fall due to bankruptcy or the bad reputation of the organization.

To avoid risks, carefully study information about the company, its financial performance, review social networks and customer/employee reviews, and diversify your investment portfolio. Don’t invest all of your money in one company, choose several to make money on some assets and invest in others. 

Do companies need an IPO?

The answer depends on the company’s goals and desire to grow. An IPO is a complex process that is not only time-consuming, but also financially demanding. But at the same time, it is an opportunity to raise a lot of money and give impetus to the development of the organization, its expansion and reaching the next level. 

S-IPO is one of the areas of the S-Group ecosystem, which helps investors to profit by investing in promising startups. A team of professional analysts, who analyze and assess risks, as well as a personnel manager, who accompanies you throughout the transaction, provide investors with security and profitable investment.