An initial public offering, also known as Stock Market Launch, is a type or offer to the public that sells stocks to institutional investors and individual investors. This is a fast sale of equity by a company to its customers. An IPO is a way for companies to raise capital. They can either issue new offers to general public or current investors can present their offers to the general public without raising capital. A company that offers its services to the general public is not required to reimburse open financial professionals for the funds.
Advantages of IPO:
IPO is a great time for many companies as it provides them with capital to invest or reinvest. They were growing rapidly and were enjoying capital expansion. It’s finally time for the owners to reap the benefits of their hard work. These can be either senior administrators or private value financial experts.
There are a few benefits to IPO.
- Expanding the introduction, distinction and open picture
- Empowering less expensive access to capital
- Strengthening and diversifying value base Drawing in and maintaining better administration and workers through fluid values interest
- Making numerous financing openings like value, convertible obligation, less expensive bank advances etc.
- Encouraging acquisitions
Disadvantages of IPO:
An organisation that offers shares to the public, also known as an “issuer”, does so with the help of speculation banks. The organisation’s shares can be traded on an open market after its initial public offering. These offers are also available for sale by speculators via auxiliary market exchanging. IPO is less well-known in India Market, as Indian Startups avoid IPOs more than the Tech Startups. It is because the funding
The most significant disadvantages that Indian startups avoid IPOs are:
- Legal and accounting costs are higher.
- Financial, private and marketing strategy and information need to be disclosed so market competitors may become well aware of the strategy of others.
- It is a lengthy process.
- Heavy funding is necessary, which raises high risks.
- The introduction of new stockholders can lead to agency control being lost.
- Risk of
- Private security has been compromised.
- The business owner cannot take multiple shares to fulfill their own purposes.
- A business owner could lose control of their company when the Board of Directors has the power to disqualify them.
Reason to Indian Startups avoiding IPO:
We can see that IPO is not suitable for Indian startups, especially those who do not have major investors. There are many reasons Indian startups won’t follow IPO.
First investors, also known as minor investors, are people who want to invest in a business that may be low-risk and low-risk. This is where the difference lies. IPOs are more expensive and take longer processes, so smaller startups might not be able to afford them. They avoid IPO because it is more expensive in legal and marketing. They should not be willing to pay such a high cost if their investment is lower.
Investors should search for an immediate and significant market entry. IPOs take a long time in all aspects, including registration and duration.
Third: A business must maintain privacy in certain instances such as operations strategy, marketing, and finance. Registering in IPO requires that they disclose all information about them. If there is no competitor, the market is null. Competitors must gain advantages if privacy issues are revealed. In a strong company, it will not be appreciated.
Fourth: If something happens such as disregards or mismatch of conception s with owner of business or Board of Director of IPO. The BOD of IPO can fire them from control of business.
Fifth: This is the security problem that most business owners face due to high-risk investments and low-security assignments. They can, however, get security from SEBI.
Sixth refers to the time it takes to execute and implement business. As we have discussed, IPOs take longer so implementation of their company requires a long road. This results in another increase in investment. The IPO must issue registrations to companies and startups within six months.
These are strong and practical reasons why Indian Startups have decided to avoid IPO. Instead, they are moving to another section where they can be the winner. These disadvantages are more important than the benefits of IPO. Mergers and Acquisition are two other options. Startups should consider which option they choose. The most important decision in a business is to choose the right strategy. Investors should consider the benefits and losses of an IPO for their business and should study the subject of strategy making after completing a successful study.