Should you go IPO?


And why not? You might ask. “Isn’t it obvious that one should always aim for IPO?” Not so, I say.

It is a common goal for first-time entrepreneurs: the rush towards getting one’s company publicly listed in the hope that after having done so, the many benefits like fame and sudden wealth will make up for all their years of slogging at their desks while being underpaid. Of course, they chose to be underpaid, choosing equity and options in the company instead – which would yield much greater monetary benefits if the company goes IPO.

But what most fail to realize is that sometimes, an IPO may not be the best exit strategy. Plus, it ain’t that easy to get there. According to research:

(1) The chances are 6 in a million that an idea for a high-tech business eventually becomes a successful company that goes public.
(2) Fewer than 20% of the funded start-ups go public.

– taken from John Nesheim’s High Tech Start Up:

Okay, okay, I didn’t mean to be discouraging but those are facts have been garnered through painstaking and in-depth research. But this doesn’t mean that your company isn’t one of those 6 eh? I firmly believe that everyone should still believe in their dreams and passions and do their very best to try to make it work and to make the company a success. Try for that 6 in a million. Nevertheless, keep your feet on the ground and have a plan B in case your company somehow cannot really go IPO.

And what is a possible plan B? Acquistion. Yeah yeah, the word stinks. Why work so hard only to have your baby sold off to some multinational big Fortune 500 company who doesn’t give a damn about your vision? Though it’s true that such acquistions occur because these big guys want your technology to expand their business, it’s also true that they can be willing to pay you big money for it – sometimes even more than an expected IPO valuation (though this is always hard to tell). Skype was acquired by Ebay for a whooping USD$2.6billion and hell, if I were part of the founding team, I might have jumped on this chance to cash out early with certainty than wait and slog for a few more years in the hope of IPO and yet, even after IPO, am not allowed to sell my shares!

Yeapz, that’s the rule. You will be locked – can’t yet convert theoretical money to real cash. This is to protect your investors who have thrown in millions into your company and also your shareholders who are buying your shares during your IPO. You can’t well expect them to invest in you and then watch you cash out and abandon the company right? That is irresponsibility and thus the law protects the public from horrendous entrepreneurs whose only aim was to cash out ASAP.

Thus, think carefully if IPO really should be the path your company will take. Granted, there are huge amounts of fame and wealth associated with an IPO, but sometimes, selling your company for a billion dollars and making yourself an instant millionaire sounds good enough to me.

Note: For the uninititated, IPO = Initial Public Offering. Also seen by some as the Holy Grail to success.

(And yes, we're serious about ethics and transparency. More information here.)

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