"Most companies that flub their IPO tend to stay low forever. Sometimes the market is too saturated with offerings and investors arent hungry. And market conditions could remain weak for years."
With IPO’s trending, it can seem pedestrian to want to retain control of your company. But there are many compelling reasons to do so. So while everyone else is listing, let's go through the reasons not to. In short, entrepreneurs could raise money without going public, stay more agile, retain their power and ultimately enjoy less regulation.
Raise money without IPO
One of the most compelling reasons to list is funding. But there are now loads of other ways to get a cash injection:
- Peer-to-peer Lending - It’s like a dating app for loans. Companies can list how much they wish to borrow and for how long. Private lenders bid on these listings in a reverse auction. Are the interest rates higher than at a bank? Yep. But you can see funds deposited in days with very flexible terms.
- Reward Crowdfunding - Here private investors give you money in return for a little perk or gift. Unlike equity crowdfunding (which I wouldn’t recommend if you’re trying to retain control of your company), reward investors don’t own any part of your business. They’re essentially making a donation to your success.
- Retail bonds - Here you sell debt in your company to the public (usually to existing customers). They get a set amount back each year until the bond matures. According to Moore Kingston Smith, “A number of companies have been creative in framing the offer to potential investors. Hotel Chocolat raised £4m through a retail bond from 100,000 members of its Chocolate Tasting Club where the interest was paid in the form of a monthly box of chocolates. Naked Wines raised £5m from members of its fine wine club where the investors could choose either to receive 7% annual interest on their loan, or a 10% discount on wines purchased.”
Without a board and stockholders, you can react quickly to market changes. There’s no need to consult anyone. It’s your company and you know best. That can help you stay ahead of the competition where they may have more rigour around their business model. Imagine an opportunity presented itself for you to diversify into a new vertical. In a publicly-traded company, there’d be layers of bureaucracy to get through before a move is taken. When you retain control of your company, there’s less talk and more action. It also allows you to work better within frameworks like Agile, Kaizen and Lean for cultures of continuous improvement.
Most companies that flub their IPO tend to stay low forever. Sometimes the market is too saturated with offerings and investors aren’t hungry. And market conditions could remain weak for years. So, there’s something to be said for keeping your own counsel on when to go public. If you’re not a tech startup, you probably won’t do well as a smaller market cap. IB states, “In short, public investors are making it clear that they’re selective about the IPOs they buy, and the prices they’re willing to pay. Startups benefit from waiting until they become a larger, more mature company before they go public.” When you keep control, you can strike when the market is ready for you. One of the most important things about staying private is that you can think about the future. Andrew Nisbet, the founder of catering supplier Nisbets, has spoken at length about this. He states that private firms, and especially family-owned companies, can think in decades, rather than years. This allows you to build long-term success with the potential to go public later.
You’re the boss
It will probably shock you to learn that; according to Medium, “almost 50% of founders get kicked out of the companies they founded or removed as CEO within 18 months following a funding event.” The very act of going public can put your neck in the noose. However, if you stay as a private company, you can keep the reins. Don’t expect to be invited back once you’re removed, either. Apple is the exception, not the rule. In most instances, ousted founders don’t make triumphant comebacks. Prevent power changing hands abruptly by retaining all or majority voting rights in your company.
Limit red tape
When you go public, you open yourself up to more scrutiny. There are new regulations to meet and reporting requirements to adhere to. According to Inform Direct, “As well as needing to have its accounts audited, public limited companies are generally unable to file abbreviated accounts, whereas smaller private companies can often do so. The fuller form of accounts means a public limited company has to disclose more detailed data about the business and its performance, information which is then available to anyone who wishes to access it. The accounts of public limited companies are often scrutinised more by analysts and receive more media commentary.” This means you could see a shift in public opinion and stock value based solely on an analyst’s opinion that gains traction in the press. Is it worth it?
For all these reasons and so much more, I recommend that you keep your company private for as long as possible. While going public may be a long term goal, there’s no need to rush into a listing.