But why do successful startup entrepreneurs subject themselves to the ruthlessness of public markets, which can turn a dime? Is it just about raising more money after the VC-funded well dries up?
In a recently published book ‘Startup Compass‘, logistics startup delhiveryCo-Founder and CEO of Sahil Barua Says that a company is subject to market uncertainties when going public, but it is often easier to raise money from a larger pool of public market investors than from a select group of private investors. Written by IIM Ahmedabad alumni Ujjwal Kalra and Shobhit Shubhankar, the book is published by HarperCollins and brings together the stories of some of the most important startups of the past decade.
Here are six reasons IPO Important for Startups:
1) The biggest advantage of getting listed according to Barua is access to a very large and inexhaustible pool of capital. “For a company, it removes one of the most important external constraints that any business can have,” Sahil explains in the book.
2) Entry into Dalal Street makes it easier for companies to raise debt. “Private lenders place more faith in listed companies. It becomes more difficult to raise financing from private investors as the company starts getting bigger,” says Sahil, adding that lenders tend to lend more comfortable because your financial position is out in the open and your stock price indicates how you are doing.
3) Public listing also creates diversity of ownership, freeing the company from being controlled by a small group of investors. “Public market investors hold a wide range in terms of investment size and sensitivity. Distributed ownership protects the company from a change in position taken by a single investor,” the book says.
4) It is a powerful signaling mechanism not only in the eyes of investors but also for potential B2B clients. “You are being governed by a board, you are reporting to shareholders, you are generating financial returns that are publicly available, your books are audited and the Securities and Exchange Board of India is consistently maintaining the quality of your business. These are all good things because it gives the customer confidence in your behavior,” says Barua.
5) Listing also creates value for employees through stock options. The potential for stock price appreciation makes the company attractive to potential employees.
6) Lastly, public listing allows for ease of mergers and acquisitions. “As a public company, I can just issue stock, and the other party can buy it,” says Barua, adding that raising capital in a private round to do M&A is far more complicated than issuing stock. Is.