Seth Farbman, an entrepreneur with 3 successful exits, is currently Co-Founder of VStock Transfer.
For many founders, going public is crucial to their overall business strategy. However, getting to the point of ringing the bell of the NYSE or Nasdaq is no easy feat.
We all know that listing your company on a public exchange is a significant milestone for any company; it’s a gateway to new opportunities and increased access to capital. Yet, to achieve this requires a long process of preparation, effort and resources. For those considering going public, planning for the advantages and unforeseen challenges is crucial.
As the cofounder of a company representing over 800 publicly traded issuers, I have had the privilege of working on hundreds of IPOs and being privy to the ups and downs weathered on the paths to public markets. In this article, I aim to present a balanced view of both the benefits of enhanced liquidity and the obstacles many companies have to handle when going public.
While my previous article focused on the procedural aspects of executing an IPO, this article looks at these procedures within the broader context of unlocking liquidity—one of the primary goals of going public. Instead of just talking about “the how,” I hope you will see “the why” and better understand the hurdles and mountains to climb. I hope I can provide some insight into the process and help companies become more well-equipped to go public.
Maximizing Liquidity Opportunities
When a company goes public, it’s like opening a door for its shareholders to easily buy or sell their shares on the open market, to put it simply. Once the company secures its spot on a public exchange, a spectrum of trading prospects opens up for shareholders, bolstering the company’s prominence and credibility.
Higher trading volumes typically indicate a healthier stock. The resultant transparent and fluid market dynamics play a pivotal role in attracting fresh investors and customers and, at times, can consequently kindle an upward trajectory in share value over time. In essence, going public is a strategic move for companies looking to give their shareholders more flexibility with their stocks.
Regulatory And Operational Complexities
One of the biggest hurdles for companies going public is the cost associated with an IPO. It can also be a lengthy process that requires a substantial amount of effort from both management and external advisors.
However, the financial commitments continue well beyond the IPO. I’ve seen firsthand the importance of understanding and managing the continuous requirements of IPOs, proxy statements, annual reports, shareholder meetings and all aspects of compliance filings.
Even after you go public, your company is subject to significant reporting obligations and regulatory requirements that continue to be time-consuming and expensive. Additionally, staying in compliance with regulations can be resource-intensive, which can lead to operational challenges, such as the implementation of new financial systems and hiring additional personnel. Overall, regulatory and operational complexities are formidable mediators that can be challenging for even previously successful businesses to overcome.
Navigating Control
So, the question remains: How does one navigate it all? While going public can bring a lot of benefits, one of its particular challenges involves reduced control.
With the need for board or investor consensus, management’s agility in decision making is often limited. It is also worth noting that market volatility can further influence share prices, sometimes resulting in added pressures from shareholders and activists.
Public companies are also subject to the scrutiny of a broader range of stakeholders, including analysts, investors and regulators. This limits the control of the company’s management team and impacts its ability to make quick decisions.
Lastly, it is important to note that public companies are ultimately at the mercy of the ups and downs of the market. Various market conditions can cause significant fluctuations in your company’s share price. This can ultimately lead to pressure from shareholders and board members.
Determining The “Right Time” To Go Public
Determining the “right time” to go public can be a daunting task and require a delicate balance. Market conditions, valuation and strategic goals are just a few of the many elements that must be considered in order to successfully navigate the complex and unpredictable nature of the public markets.
This is one of the reasons why building relationships with investors before you go public is paramount to a successful IPO. With a supportive army behind you, it can be easier to weather the storm that lies ahead. While leadership plays an essential role in this process, it’s important to recognize that external factors beyond your control can also significantly impact the timing of a public offering.
Therefore, I encourage you to have a clear strategy and a well-thought-out plan for going public that includes a strong management team and a compelling story that will resonate with investors. With the right preparation and approach, companies can achieve their goals and thrive in the public markets.
Unlock New Opportunities
Yes, going public can be a difficult decision for any company to make, but the benefits it brings can be extraordinary. Access to new investors and sources of capital can help a company expand like never before. All the while, public companies can create liquidity opportunities for shareholders, which then can lead to increased investor confidence.
As a result, going public can greatly enhance a company’s profile and reputation in the market. However, companies must balance these benefits against the many challenges they may present. Going public: Where the thrill of growth meets the chaos of the market. I find it ironic that you can’t get to live the public company dream without some sleepless nights.
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