4 ms·

Honesty I don't get why a company has to go public and gamble its future on a herd of people that they have no clue about the business and just try to make prof

Honesty I don't get why a company has to go public and gamble its future on a herd of people that they have no clue about the business and just try to make profit out of you based on speculation. Stay private and get loans. At least loan rates will not change by 1000% overnight based on some nonsense that someone wrote on his Twitter.

marcoperaza 8y ago
The whole point of owning part of a company is to collect dividends and/or sell your shares for more than you bought them for. But without going public, it can be difficult to do the latter.
- zaksoup 8y ago
  This doesn't seem true. What about having voting rights on board members/company direction? How do worker-owned co-ops even function if this is the 'whole point of owning part of a company'. Why do we take 'maximize shareholder value' as though it's some rule handed down by god and the only possible way to operate a company, public or otherwise? It just isn't the case.
  - marcoperaza 8y ago
    You don’t just control a company for fun. I mean, maybe you do and more power to you, but just about everyone else votes in those elections so that the company will be better run, so that in the short/medium/long-run dividends or share price will go up.
  - icebraining 8y ago
    > How do worker-owned co-ops even function if this is the 'whole point of owning part of a company'. They would work want to collect dividends - in the form of higher wages or other non-monetary compensation.
  - walshemj 8y ago
    That is how worker coops work all members are share holders one member one vote.
  - gwbas1c 8y ago
    Worker-owned co-ops exist to provide employment (and profit) for their employees.
- whatever1 8y ago
  So your argument is that the shareholders of a private need to thoroughly search for potential buyers and convince them for the value of the equity instead of just pressing "sell" on the robinhood app, that will enable random Becky to become a shareholder?
- krelian 8y ago
  Isn't the whole point of owning a company is have a share of its profits? That's why the stock market never made sense to me. The price and price gains or losses on stocks are not related at all to the profits.
  - kerbalspacepro 8y ago
    The point of owning a company is to have a share of its profits. But when you do that, you also sign onto a multitude of risks (like the profit going out the window!) So the stock market allows you to take those risks and mitigate them in near-as-possible real time.
  - harryh 8y ago
    The price and price gains or losses on stocks are not related at all to the profits. Perhaps not in the short term, but they definitely are in the long term.
  - roguecoder 8y ago
    You can think of a share as a bet on the future potential value. So past value was previously reflected in the share price, but sometimes high profits mean that the growth is over because there's not useful R&D to be doing, whereas sometimes low profits mean that growth is ahead. Future performance is also highly uncertain and influenced by external factors: geopolitics, demand for the product, other competitors, outside innovation, taxation changes, people's relationship to the CEO, the marginal cost of that investment relative to other similar investments that serve as close substitutes, etc. All of that information is going to be part of the price of the stock, because all of that information influences the future of the company. Plus then since the future is unknowable, it's tied up with investor's personal risk profiles, discount factors and some straight up sentimentality. If you have a crystal ball and can predict the future perfectly, stock prices would correlate with profits, but even if the market was perfect, current profits would be related to past stock prices, not current stock prices. (Oh, and to make it more complicated and basically impossible to model with linear equations, if you own stock you can influence those future outcomes both directly via shareholder activism and indirectly via the effect you have on a company's cost of capital, so the whole system is dialectic.)
pkaye 8y ago
Because some people don't want to deal with ugly details of making a company profitable.
yourapostasy 8y ago
I imagine there has to be a significant enough scaling difference between the capital raised by IPOs, which is a one-time event, and subsequent cash returns to shareholders in various forms, which can be characterized as interest payments on that one-time liquidity event (absent subsequent share issuances to keep this description simple) that never ends, versus a loan-then-repayment or bond issuance-then-repayment, that makes the IPO compellingly attractive. I've also heard that many leadership teams choose an IPO because it is easier and faster to raise the sums involved than going to the private markets, and when in a "move fast and break things" mode, competitors hot on your heels, that's got to weight heavily in favor of an IPO.
- cgb223 8y ago
  100% agreed with this In addition to that, coming form a private equity holders perspective, its a way for some of us to cash out on the general market. If I had a big stake in a private company, maybe I can only sell my options every 6 months, if my company is kind enough to set that up. If there's an IPO I can sell my stake at what is probably a higher market value than the internal price and cash out all at once (or over time)
- khuey 8y ago
  The obvious upside to an IPO vs a debt issuance is that an IPO allows the existing owners to trade shares for cash too.
stealthmodeclan 8y ago
> Stay private and get loans What if they got stuck in some scandal? IPO is also a way to shield the company from action of an evil executive. If some politician has a beef with a private business, they can potentially cause them enormous loss. But no politician would like to take some action which might cause public losing money because of the fear of losing their support through votes. Not only this, it's also a feedback mechanism. A company exceeds quarterly expectations, more people jump to buy their shares as a result executives sell and profit. And large companies will have projects which might take long to profit, but they can be immediately judged on their next move post IPO. How will this work in a private company?
walshemj 8y ago
Companies debt / covenants doesn't change on a tweet you normally agree x% for Y years

marcoperaza 8y ago

The whole point of owning part of a company is to collect dividends and/or sell your shares for more than you bought them for. But without going public, it can be difficult to do the latter.

zaksoup 8y ago
This doesn't seem true. What about having voting rights on board members/company direction? How do worker-owned co-ops even function if this is the 'whole point of owning part of a company'. Why do we take 'maximize shareholder value' as though it's some rule handed down by god and the only possible way to operate a company, public or otherwise? It just isn't the case.
- marcoperaza 8y ago
  You don’t just control a company for fun. I mean, maybe you do and more power to you, but just about everyone else votes in those elections so that the company will be better run, so that in the short/medium/long-run dividends or share price will go up.
- icebraining 8y ago
  > How do worker-owned co-ops even function if this is the 'whole point of owning part of a company'. They would work want to collect dividends - in the form of higher wages or other non-monetary compensation.
- walshemj 8y ago
  That is how worker coops work all members are share holders one member one vote.
- gwbas1c 8y ago
  Worker-owned co-ops exist to provide employment (and profit) for their employees.
whatever1 8y ago
So your argument is that the shareholders of a private need to thoroughly search for potential buyers and convince them for the value of the equity instead of just pressing "sell" on the robinhood app, that will enable random Becky to become a shareholder?
krelian 8y ago
Isn't the whole point of owning a company is have a share of its profits? That's why the stock market never made sense to me. The price and price gains or losses on stocks are not related at all to the profits.
- kerbalspacepro 8y ago
  The point of owning a company is to have a share of its profits. But when you do that, you also sign onto a multitude of risks (like the profit going out the window!) So the stock market allows you to take those risks and mitigate them in near-as-possible real time.
- harryh 8y ago
  The price and price gains or losses on stocks are not related at all to the profits. Perhaps not in the short term, but they definitely are in the long term.
- roguecoder 8y ago
  You can think of a share as a bet on the future potential value. So past value was previously reflected in the share price, but sometimes high profits mean that the growth is over because there's not useful R&D to be doing, whereas sometimes low profits mean that growth is ahead. Future performance is also highly uncertain and influenced by external factors: geopolitics, demand for the product, other competitors, outside innovation, taxation changes, people's relationship to the CEO, the marginal cost of that investment relative to other similar investments that serve as close substitutes, etc. All of that information is going to be part of the price of the stock, because all of that information influences the future of the company. Plus then since the future is unknowable, it's tied up with investor's personal risk profiles, discount factors and some straight up sentimentality. If you have a crystal ball and can predict the future perfectly, stock prices would correlate with profits, but even if the market was perfect, current profits would be related to past stock prices, not current stock prices. (Oh, and to make it more complicated and basically impossible to model with linear equations, if you own stock you can influence those future outcomes both directly via shareholder activism and indirectly via the effect you have on a company's cost of capital, so the whole system is dialectic.)

pkaye 8y ago

Because some people don't want to deal with ugly details of making a company profitable.

yourapostasy 8y ago

I imagine there has to be a significant enough scaling difference between the capital raised by IPOs, which is a one-time event, and subsequent cash returns to shareholders in various forms, which can be characterized as interest payments on that one-time liquidity event (absent subsequent share issuances to keep this description simple) that never ends, versus a loan-then-repayment or bond issuance-then-repayment, that makes the IPO compellingly attractive. I've also heard that many leadership teams choose an IPO because it is easier and faster to raise the sums involved than going to the private markets, and when in a "move fast and break things" mode, competitors hot on your heels, that's got to weight heavily in favor of an IPO.

cgb223 8y ago
100% agreed with this In addition to that, coming form a private equity holders perspective, its a way for some of us to cash out on the general market. If I had a big stake in a private company, maybe I can only sell my options every 6 months, if my company is kind enough to set that up. If there's an IPO I can sell my stake at what is probably a higher market value than the internal price and cash out all at once (or over time)
khuey 8y ago
The obvious upside to an IPO vs a debt issuance is that an IPO allows the existing owners to trade shares for cash too.

stealthmodeclan 8y ago

> Stay private and get loans What if they got stuck in some scandal? IPO is also a way to shield the company from action of an evil executive. If some politician has a beef with a private business, they can potentially cause them enormous loss. But no politician would like to take some action which might cause public losing money because of the fear of losing their support through votes. Not only this, it's also a feedback mechanism. A company exceeds quarterly expectations, more people jump to buy their shares as a result executives sell and profit. And large companies will have projects which might take long to profit, but they can be immediately judged on their next move post IPO. How will this work in a private company?

walshemj 8y ago

Companies debt / covenants doesn't change on a tweet you normally agree x% for Y years