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As a startup owner, you will want to optimise how your business moves through the various stages of its life. One key aspect of this is your startup ‘going public’ rather than staying private. Typically, this is where you make an initial public offering (often called an IPO) in a stock market. Becoming a publicly-traded company can attract serious investment into your company while making it more desirable for possible mergers and acquisitions.
However, it is essential that if you decide to go public, you do so at the correct time. This article will outline some of the key points to keep in mind if your business is considering making an initial public offering and some advice on how to decide if it is the right time to take your company public.
What is an Initial Public Offering?
Going public through an initial public offering is where your company becomes a publicly-traded company on a stock exchange. To list on most public markets, you will need to meet specific regulatory requirements for that stock exchange.
Why Make an Initial Public Offering?
An IPO can be a significant way of exposing your business to public investors. This can help you access a great deal of finance, which you can reinvest into scaling your business.
Similarly, going public will give you significant power in looking to acquire other companies to become a part of your overall business operations or to look to merge your company with an even larger one. These could be part of an overall business strategy to scale and grow your business operations.
What Should I Consider?
If you want to go public, you should take several considerations into account first.
The first step is to analyse your company’s financial situation. How well your products or services are doing will determine the general value of your company, but equally important is your financial health. This will often directly impact your share price when you list on any public market, and it will significantly influence how investors view a public company.
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Gaining Investor Confidence
Within this, you should focus on your gross margins and your predicted growth.
Having strong margins is an essential aspect of being a successful public company.
On the other hand, growth is calculated differently depending on the market you are operating within. Therefore, having a significant market share in a growing market is highly desirable for all investors.
However, not being in this position does not preclude you from having growth potential. You can also show your growth prospects by:
- demonstrating customer retention;
- gaining access to new markets;
- developing new products; and
- lowering costs.
In other words, you must tell a story that shows that your company is not stagnant and has potential for future growth.
Can You Handle an IPO?
Before deciding to become a publicly-traded company, it is always good to make sure that you have checked that your company can handle making its debut in public markets. You need to be aware that your own shares in the company will be diluted, and you will also want to make sure that your business valuation is one that public investors will accept.
Ultimately, you should always keep in mind a vision of what you are trying to achieve with an IPO and the next stage of your business if you successfully become a publicly-traded company.
If you think you can handle all of the above, it could be an excellent time to think about taking your private company into the public market.
Key Takeaways
As a private company considering going public, you should not forget key considerations. These include your business’s appeal to potential investors on public markets and your ability to deal with some of the difficulties of going public. Above all, it is imperative to make sure that you have a clear business strategy and goal for when you go public.
If you need help with your startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An IPO is where a company is listed on a public stock market for the first time.
Some examples include the London Stock Exchange, the New York Stock Exchange, and NASDAQ.
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