CHAPTER 12
The Do-It-Yourself Public Offering
The Allure of Public Venture Capital
So far, we have explored various ways that entrepreneurs can connect with investors. These models hold great promise, but each has its limitations. Sometimes the most effective method of raising capital is to take the leap and go public. Indeed, the initial public offering, or IPO, is the magical moment that many entrepreneurs and their early stage investors dream of, when they can reap the rewards of their risk taking. Nothing says you’ve arrived like an IPO.
Generations of ambitious companies have chosen this route. Public stock offerings are often the best solution for companies that need a significant capital infusion. Selling shares to the public opens up a huge new pool of growth capital with none of the constraints of private investments. This is long-term capital: no loan to pay back, no interest payments to be made, no pressure to sell the company. And millions of ordinary investors get their first shot at owning shares of an admired company with strong growth prospects.
IPOs, however, come at a cost. For one, they are expensive. Costs for legal, listing, and accounting fees can easily exceed $1 million, so IPOs make sense only for companies seeking to raise large sums, usually $25 million or more. Once public, there is the ongoing expense of managing investors and issuing quarterly audited financial reports. Suddenly, the company is thrust into the harsh glare of the public spotlight, ...
