Initial Public Offering (IPO) also known as “going public” is a complex decision which calls for appropriate planning and careful consideration. It’s a process wherein a privately held company for the first time, issues its stock to the public. IPO is a dream for many small businesses as it transforms a private company into a public entity thereby helping the company get exposure and improved credibility. IPO financing is crucial when a private company seeks to take its business to the next level. With IPO financing, the company becomes a part of the stock market whose shares are made available to the general public for investment. A significant reason why people opt for IPO financing is for growth and expansion. However, founders or venture capitalists may always influence this decision if they are eager to cash out on their investment.
IPO financing requires a small business to undergo a considerable amount of changes. While there are many benefits involved in going public, it comes at the cost of reduced flexibility and management control. However, these shortcomings don’t matter considering the decision is made for expanding the business. Small businesses wanting to list themselves on the market require permission from Securities and Exchange Board of India (SEBI). Only after the approval of the board, business is listed on the stock market.
The following are the advantages of IPO financing:
Increased funds: With IPO financing, raising funds becomes easy thereby helping a company amass huge capital by reaching out to a large number of the public at the same time. Increased availability of funds help the company in numerous ways; these include every element from manufacturing and technological advancement to advertisement and quality check. For eg: Shanti Snacks raise INR 100 crore through the fresh issue which helped them enhance their production capacities of snacks by nearly 100%.
Liquidity: The primary advantage of IPO is liquidity. Its direct monetary impact makes it a standout investment avenue for investors who like to cash out at any point in time. General public too can make the most out of the liquidity factor as it enables them to withdraw from stocks which don’t interest them and might reinvest in some other. The convenience of selling funds with ease in the market is what makes IPO standout.
Improved Finances: IPO financing helps cover the overall finances of not just the company but its shareholders as well. It helps the company through valuation and debt control. The moment a private company is listed, its valuation skyrockets as compared to private company valuation. The primary reason being the immediate transparency with adherence to SEBI regulation. With transparency, banks and other financial institutions such as NBFCs do not hesitate while providing loans to these companies.
The points above are three major benefits of IPO Financing.