What are the reasons that companies go for an IPO?
From Wikipedia: “An initial public offering (IPO) is the first sale of a corporation’s common shares to public investors. The main purpose of an IPO is to raise capital for the corporation.” Other than raising capital, the reasons may be: 1. Liquidation of the shares of the company so that the founders and the rest of the existing shareholders will be able to “cash out” and trade their shares for cash or other traded stocks (referred to as “exit event”). 2. Expansion of the company into new territories or markets may require the company to become public, not only by means of more funding, but also by regulatory or marketing reasons. Being public is associated with credibility and accountability. 3. Expansion of the company either by acquisition or merger. Getting more money into the company allows the company to have more money to finance takeovers or mergers with other companies. Moreover, being public will allow the company to merge with private companies who want to become public wi
There are two basic needs. The IPO add cash to the company (which you are aware of). You can raise money buy sharing the opportunity/risk and the most common way is doing it for stocks. The alternate way is to raise from banks, and this is good for short term only. When considering raising for stocks, IPO is usually the best way since the the money raised per share/percentage is usually much higher that private investment. But there is also the other reason. IPO makes the company shares much more trade-able. If you look at used cars, those that are highly trade-able have a better value since you agree to pay more when you know you can sell it easily. But making the shares easily trade-able, it’s value increase.
