The initial public offering or an IPO means and also is called Stock Market Launch is basically a type of offer to the public through which stocks are sold to institutional investors or to the retail or individual investors. This is a very fast sale of equity that is being issued by a company to the public. Organisations can raise value capital with the assistance of an IPO by issuing new offers to people in general, or the current investors can pitch their offers to the general population without raising any crisp capital. Along with, An organisation offering its offers to the general population isn’t obliged to reimburse the funding to open financial specialists.
Advantages of IPO:
IPO comes with a good time for many companies which provides them with a lot of money as capital to invest and reinvest. So they were become growing and very often they were getting a blast in capital expansion. For the proprietors, it’s at long last time to take advantage of all their diligent work. These are either private value financial specialists or senior administration. A few advantages of IPO are listed
- Expanding the introduction, distinction, and open picture
- Empowering less expensive access to capital
- Extending and differentiating value base Drawing in and holding better administration and workers through fluid value interest
- Making numerous financing openings like value, convertible obligation, less expensive bank advances etc.
- Encouraging acquisitions
Disadvantages of IPO:
The organisation which offers its shares, known as an ‘issuer’ does as such with the assistance of speculation banks. After IPO, the organisation’s offers are exchanged an open market. Those offers can be additionally sold by speculators through auxiliary market exchanging. Though IPO is not so famous in Indian Market as Indian startups avoid IPO more specifically the Tech Startups. The main reason behind it is that the funding
The remarkable disadvantages for which Indian startups generally avoid IPO are:
- Legal, accounting and marketing cost is 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 long process to be executed.
- Heavy funding is required hence raising high risk.
- The stronger agency faces the loss of control, due to the introduction of new stockholders.
- Increased risk of
- Private security is weakened.
- The business owner is not able to take many different shares for their own purpose.
- A business owner may lose ownership as Board of Directors get the power to reject them.
Reason to Indian Startups avoiding IPO:
As we see the disadvantages, we surely tell that IPO may not fit for startups in India specifically who are not the major investors. There some distinct reasons why Indian startups are not going to follow IPO.
First, investors or minor investors means they want to proceed to a business which may cost a low risk and low investment. Here makes the difference. An IPO requires a higher amount and lengthy process, minor startups may not accommodate their need in this. So they avoid choosing IPO, and on the other hand, IPO requires a higher cost in legal and marketing domain. So they should be unwilling to provide such huge cost as their investment is less.
Secondly, investors should look for a quick and massive punch through in the market. IPO take a lengthy period in all aspects like duration, registration etc.
Third, a business must keep privacy in some instance such as operation strategy, marketing, finance. If they register themselves in IPO, it requires to disclose all their privacy matters towards them. The market is meaningless is there should be no competitor. If the privacy matters are disclosed, competitors must get advantages from it. It will not be desired in a strong business.
Fourth, if something happens like disregards and mismatch of the conception s with the owner of control of the business and the Board of Director of IPO, BOD of IPO has the power to fire them from the control of the business.
Fifth, that is the security problem faced by most of the business owner due to high-risk investment and low-security assignment. Rather they can get good security from SEBI itself for example.
Sixth is the duration of time to implement and execute business. As discussed, IPO takes longer time, so for implementation of their company takes a long road to be started and meanwhile other makes their road. This leads to another gain in investments. IPO needs six months to issue the registration to the companies or startups.
Above are the strong and practical reasons for which Indian Startups are now avoiding IPO mechanism rather they are going to other section where they will be the gainer. Those disadvantages come in a more focusing scenario over advantages of IPO. The other options may be the Mergers and Acquisition. Though the startups should think which way they will choose. In the business choice of the strategy is the most important. Investors should go for the advantages and loss of having IPO in their business, and after successful study, they should enter into the domain of strategy making.