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Going public creates a liquid market in the company's shares, which allows the owners to convert equity to cash. This ability is especially prized by investors,
by mhartl 15y ago
Going public creates a liquid market in the company's shares, which allows the owners to convert equity to cash. This ability is especially prized by investors, but founders and employees-with-options also benefit. (It's hard to buy a house with stock.)
- bo1024 15y agoSo please correct me if I'm wrong, but put more bluntly, you're saying that it is selling your company in order to get rich, no?
- ahlatimer 15y agoWell, you're already rich on paper. An IPO just gives you an easier path to turn that value on paper into money.
- robryan 15y agoSelling a portion of your company to get well off well retaining a large stake. Also good to have employees able to cash out more easily.
- pg 15y agoNo. You don't get any richer by a trade at market price. The goal is usually diversification.
- sireat 15y agoI will have to respectfully disagree with pg here. Going public usually involves getting quite a bit richer by some multiple of the original value. In a hot IPO market you generate what Adam Smith(a pseudonym) called "Supermoney" in the late 1960s. A company which catches public's fancy can generate market values hugely over what the company would be worth in a private sale(think NFLX, think AMZN, most likely Facebook shares and so on). The liquidity and with it coming diversification is a nice plus but not the sole reason. Of course, the company can fall from grace at some point, but even then it retains a premium over what it would be worth as a private company. This is almost by definition, otherwise the company does get taken private.
- ivankirigin 15y agoHis point is that going public increases liquidity on static wealth. The act of going public doesn't make more wealth, even if it lets people convert stock notes to dollar notes.