“There is a general attitude that the cool kids sell their companies rather than going public,” one entrepreneur told NPR recently.
Last week the news organization interviewed several business owners about why they felt that IPOs were not the best course of action for their companies.
Jai Shekhawat, CEO of Fieldglass, told reporters, “People don’t really see it as a badge of honor anymore. It’s a hassle.”
And this was the perception before Facebook’s interesting initial public offering, which only further cemented the downfall of IPOs.
Why IPOs Are Out
Shekhawat cited three reasons why he’s not attracted to IPOs, according to NPR.
- There are too many regulations. After large corporate scandals like Enron, the government has more regulations than in the past. Complying with the rules takes massive manpower and money.
- Shareholders have extremely high expectations for the company’s growth and performance.
- You run the risk of becoming an “orphan” when you don’t perform well and investors leave.
In addition to the reasons Shekhawat states, there are other things that give business owners pause about IPOs.
- Dilution of ownership – Business owners don’t necessarily have the final say in all major decisions. A board does.
- Loss of independence and cultural change – This is along the lines of what Shekhawat said about shareholders’ expectations. With the external pressures from stockholders and a critical public eye, management and employees can feel a shift in the way that they do business. A main concern becomes How will the public perceive this move? This is not a fear pre-IPO.
Why Selling Your Business Is In
If business owners choose to stay private, the major benefit they receive is the ability to focus on managing and growing the business rather than on complying with Sarbanes-Oxley laws, which can cost several hundred thousand dollars annually to comply with.
In some cases, being able to focus entirely on strategic leadership creates a greater opportunity for growth, which has a high probability to translate into more money when a business owner decides to eventually exit his or her company.
As opposed to an IPO, private business owners are choosing cash instead of stress via the sale of their businesses. Keep in mind too, that most companies go the IPO route to raise additional capital for growth. This can also be achieved via a partial sale to an equity firm, an alternative to consider if you need funds for expansion and want a partner to help you grow rather than shareholders to answer to.
What do you think? Are IPOs losing popularity?
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