Should You Go Public with Your Startup?

The short answer is: you probably won’t. Conventional wisdom is that one in ten startups fail; the likelihood of success by public offering is probably closer to one in one thousand. According to a recent article from Fast Company, startups used to aim to go public in relatively short order largely to bring in significant funds, yet with the rise of venture capital and various hedge funds over the last decade or so, many startups are able to remain private while raising significant sums, some even raising more than billions of dollars while remaining private. The M&A market is far more active, so the reality is that exit by acquisition remains a much more likely outcome than exit by IPO.

If you are thinking about going public with your startup, what are the major considerations you should have in mind before considering an initial public offering (IPO)? Our startup lawyers can provide more information on how to weigh the various growth paths below and discuss your specific goals with you today.

Reasons Startups Go Public

What are some of the key reasons that startups go public? While most successful startups won’t go public, for those that pursue that route, these are some of the reasons why:

• Raise more capital, and increase the company’s access to more capital in the future;
• Make it easier for owners and employees to sell stock in the company by increasing the liquidity for the company’s stock;
• Acquiring other businesses with more liquid public company’s stock;
• Attracting new employees with broader stock options;
• Raising awareness and creating publicity for the company; and
• Creating prestige for the company.

Considerations for Going Public

While there are well-established benefits for going public, many of which we cited above through the SEC, there are also important considerations that your startup should keep in mind before taking steps toward an IPO, such as:

• You will need to spend significant money and time for an IPO (between $5 and $20 million plus ongoing fees of at least $1-2 million per year);
• In going public, your company will have numerous additional filing and reporting obligations to the SEC, as well as new obligations to shareholders and to the market, which will require additional time, resources, and money;
• Your company can become newly liable if it fails to comply with obligations of a public company;
• Public shareholders will have a say in certain business affairs of your company, which can reduce the flexibility you had prior to going public; and
• General public will now have access to key financial information about your company.

Thinking About an IPO? Let’s Pressure-Test Your Timing 

Do you have general questions about the benefits and limitations of going public, or do you need assistance planning for an IPO? One of the startup attorneys at Triumph Law can speak with you today about the details of your company and can answer any questions you have about going public. Contact us to learn more about the tailored services we provide to startup founders and their companies at every stage.

Source:

sec.gov/resources-small-businesses/going-public/should-my-company-go-public