To IPO or not to IPO?
If you are a private company growing fast and seeking funding to fuel your expansion, at some point you face a pivotal decision: is it best to list on a public market with an Initial Public Offering (IPO) or stay unlisted and raise capital privately?
The Case for an IPO
Let’s look at the main benefits and downsides of going public. There are three main reasons companies undertake an IPO:
1.Capital: The primary reason many companies choose to go public is the immediate access to a large pool of capital the public markets offer. By issuing shares to the public, you can raise the capital you need to fuel your company’s growth, expansion, strategic initiatives and have optionality on future capital raises available on call in a very short space of time (all things being equal). Securities can also be used as “currency” for M&A purposes.
2.Liquidity: IPOs provide shareholders with the opportunity to sell their shares in a highly liquid public market when they wish, assuming no escrow has been applied to securities. This is a significant benefit for early investors and employees looking to monetise their holdings, and it can attract a broader investor base.
3.Visibility: An IPO can dramatically increase your company’s visibility. It puts your brand in front of a larger audience – including investors, potential customers and partners – and makes it easier for stakeholders to track your performance. This profile raising can be a game-changer for your growth, but it comes with downside: heightened scrutiny from regulatory bodies, shareholders, and the public, and potential damage to your reputation if things go awry.
This exposure may also attract short-term market speculation, potentially causing stock price volatility and impacting long-term strategic planning. Your operations, financial performance, and decision-making processes become subject to public scrutiny, with pressure for short-term results (e.g. dependable earning expectations) and significant time costs (such as investor relations taking up a meaningful portion of your time, especially around reporting seasons). It does, however, build a level of “trust” with the public simply by being listed.
The Considerations of Going Public
Whilst we are certainly advocates of the transparency and improved governance that being a public company brings, we are considerate of IPO’ing “at the right time and size”: going public comes with increased risks and costs and unless you are incredibly fortunate, it’s something that you are only going to do once so best to be well prepared and get it right. Going public too early or in unfavourable market conditions can lead to underperformance, a loss of confidence from investors if you miss milestones and that negative investor sentiment acts as a headwind on progress. Here are some of the challenges that face a company upon listing:
Regulation: Going public means adhering to stringent regulatory requirements including financial reporting and continuous disclosure obligations. Complying with these regulations is time-consuming, costly and – for management – a distraction from the important day-to-day.
Cost: The process of preparing for an IPO, including legal, accounting and underwriting fees, is an expensive process and one that companies generally underestimate. Ongoing compliance costs can also add up, impacting your bottom line. In fact, a survey of ASX 300 companies, published by the Australasian Investor Relations Association earlier this year, showed a median cost of $7.3m associated with an ASX listing for these companies[i]. We estimate minimum annual costs of $750,000 for a small public company as a sensible benchmark for those considering listing, with additional people costs, directors and officers insurance, and audit fees comprising a large proportion of this figure.
Volatility: Publicly traded companies are subject to market volatility, which can lead to significant fluctuations in share price, often beyond your control. Share prices can be influenced by speculation and market sentiment, which in turn can be swayed by macroeconomic factors, geopolitical events, and investor sentiment. Market sentiment can sometimes cause stocks to move independently of a company’s fundamentals. This volatility can be challenging and a distraction for management, with investors in public markets sometimes guilty of herding behaviours.
Decreased control: Going public typically involves ceding a level of control to shareholders, including institutional investors, and the board, meaning dilution of power and loss of independence as well as conflicting goals and interests.
Small fish, big pond: While it may seem companies gain visibility with an IPO, in Australia you will have over 2,000 listed peers, many of which fall within a very long tail of small and mid-cap stocks outside of the main indices, and all competing for investor attention. Standing out in a saturated market can be a challenge that can hinder the ability to attract capital, which can in turn affect your value.
Being one of a select few high-quality growth companies in the market for sophisticated investors can offer better opportunities in some cases, while staying private longer allows you to focus on building strong relationships with these investors who understand your industry and long-term vision whilst focusing on growing your business.
The Nirvana for Growth Companies
If you are still torn, good news: there is an option that offers many of the benefits of both private and public markets. By running a capital raise or liquidity event on Australia’s only end to end private market platform FCX, you can retain the benefits of being a private company, while still achieving visibility, liquidity, and access to capital.
Visibility on FCX: FCX can provide your company with a platform for visibility among a select group of investors who are specifically interested in private market opportunities. This focused exposure allows you to showcase your potential without the broader scrutiny that comes with an IPO. It also allows investors transparency over their investments on FCX, with clear company information and communications in a single location.
Liquidity on FCX: FCX provides a controlled environment for investors to buy and sell shares, creating liquidity for stakeholders and allowing them to realise the value of their investments – but on your schedule. This offers an attractive middle ground between private and public markets, allowing for controlled and orderly liquidity events.
Capital on FCX: FCX can be an excellent source of funding for your growth plans. You can attract investment, settle your transaction and have your cap table updated live which is a more cost-effective and efficient means of funding your growth.
Predictability with FCX: Avoid the volatility and scrutiny of public markets, making it easier to maintain stability and focus on your long-term objectives.
Control with FCX: Stay true to your vision and goals and allow for ongoing innovation by staying private and communicating directly with engaged investors.
Cost savings on FCX: Save on administration fees with a low, predictable monthly subscription to FCX.
If you plan to go public but want to delay until you are more suited to a public market environment, FCX can be a bridge between private and public life, maximising the benefits of your current private status and laying some of the best-practice foundations for your future public life.
FCX enables your company to grow, access capital, and increase visibility without the immediate transition to public status. Via its liquidity offering, FCX offers you the opportunity to clean up your cap table and attract strategic investors, avoiding potential overhangs on IPO and all while preserving the control and independence that being private allows.
To IPO or not to IPO?
If you are a private company growing fast and seeking funding to fuel your expansion, at some point you face a pivotal decision: is it best to list on a public market with an Initial Public Offering (IPO) or stay unlisted and raise capital privately?
The Case for an IPO
Let’s look at the main benefits and downsides of going public. There are three main reasons companies undertake an IPO:
1.Capital: The primary reason many companies choose to go public is the immediate access to a large pool of capital the public markets offer. By issuing shares to the public, you can raise the capital you need to fuel your company’s growth, expansion, strategic initiatives and have optionality on future capital raises available on call in a very short space of time (all things being equal). Securities can also be used as “currency” for M&A purposes.
2.Liquidity: IPOs provide shareholders with the opportunity to sell their shares in a highly liquid public market when they wish, assuming no escrow has been applied to securities. This is a significant benefit for early investors and employees looking to monetise their holdings, and it can attract a broader investor base.
3.Visibility: An IPO can dramatically increase your company’s visibility. It puts your brand in front of a larger audience – including investors, potential customers and partners – and makes it easier for stakeholders to track your performance. This profile raising can be a game-changer for your growth, but it comes with downside: heightened scrutiny from regulatory bodies, shareholders, and the public, and potential damage to your reputation if things go awry.
This exposure may also attract short-term market speculation, potentially causing stock price volatility and impacting long-term strategic planning. Your operations, financial performance, and decision-making processes become subject to public scrutiny, with pressure for short-term results (e.g. dependable earning expectations) and significant time costs (such as investor relations taking up a meaningful portion of your time, especially around reporting seasons). It does, however, build a level of “trust” with the public simply by being listed.
The Considerations of Going Public
Whilst we are certainly advocates of the transparency and improved governance that being a public company brings, we are considerate of IPO’ing “at the right time and size”: going public comes with increased risks and costs and unless you are incredibly fortunate, it’s something that you are only going to do once so best to be well prepared and get it right. Going public too early or in unfavourable market conditions can lead to underperformance, a loss of confidence from investors if you miss milestones and that negative investor sentiment acts as a headwind on progress. Here are some of the challenges that face a company upon listing:
Regulation: Going public means adhering to stringent regulatory requirements including financial reporting and continuous disclosure obligations. Complying with these regulations is time-consuming, costly and – for management – a distraction from the important day-to-day.
Cost: The process of preparing for an IPO, including legal, accounting and underwriting fees, is an expensive process and one that companies generally underestimate. Ongoing compliance costs can also add up, impacting your bottom line. In fact, a survey of ASX 300 companies, published by the Australasian Investor Relations Association earlier this year, showed a median cost of $7.3m associated with an ASX listing for these companies[i]. We estimate minimum annual costs of $750,000 for a small public company as a sensible benchmark for those considering listing, with additional people costs, directors and officers insurance, and audit fees comprising a large proportion of this figure.
Volatility: Publicly traded companies are subject to market volatility, which can lead to significant fluctuations in share price, often beyond your control. Share prices can be influenced by speculation and market sentiment, which in turn can be swayed by macroeconomic factors, geopolitical events, and investor sentiment. Market sentiment can sometimes cause stocks to move independently of a company’s fundamentals. This volatility can be challenging and a distraction for management, with investors in public markets sometimes guilty of herding behaviours.
Decreased control: Going public typically involves ceding a level of control to shareholders, including institutional investors, and the board, meaning dilution of power and loss of independence as well as conflicting goals and interests.
Small fish, big pond: While it may seem companies gain visibility with an IPO, in Australia you will have over 2,000 listed peers, many of which fall within a very long tail of small and mid-cap stocks outside of the main indices, and all competing for investor attention. Standing out in a saturated market can be a challenge that can hinder the ability to attract capital, which can in turn affect your value.
Being one of a select few high-quality growth companies in the market for sophisticated investors can offer better opportunities in some cases, while staying private longer allows you to focus on building strong relationships with these investors who understand your industry and long-term vision whilst focusing on growing your business.
The Nirvana for Growth Companies
If you are still torn, good news: there is an option that offers many of the benefits of both private and public markets. By running a capital raise or liquidity event on Australia’s only end to end private market platform FCX, you can retain the benefits of being a private company, while still achieving visibility, liquidity, and access to capital.
Visibility on FCX: FCX can provide your company with a platform for visibility among a select group of investors who are specifically interested in private market opportunities. This focused exposure allows you to showcase your potential without the broader scrutiny that comes with an IPO. It also allows investors transparency over their investments on FCX, with clear company information and communications in a single location.
Liquidity on FCX: FCX provides a controlled environment for investors to buy and sell shares, creating liquidity for stakeholders and allowing them to realise the value of their investments – but on your schedule. This offers an attractive middle ground between private and public markets, allowing for controlled and orderly liquidity events.
Capital on FCX: FCX can be an excellent source of funding for your growth plans. You can attract investment, settle your transaction and have your cap table updated live which is a more cost-effective and efficient means of funding your growth.
Predictability with FCX: Avoid the volatility and scrutiny of public markets, making it easier to maintain stability and focus on your long-term objectives.
Control with FCX: Stay true to your vision and goals and allow for ongoing innovation by staying private and communicating directly with engaged investors.
Cost savings on FCX: Save on administration fees with a low, predictable monthly subscription to FCX.
If you plan to go public but want to delay until you are more suited to a public market environment, FCX can be a bridge between private and public life, maximising the benefits of your current private status and laying some of the best-practice foundations for your future public life.
FCX enables your company to grow, access capital, and increase visibility without the immediate transition to public status. Via its liquidity offering, FCX offers you the opportunity to clean up your cap table and attract strategic investors, avoiding potential overhangs on IPO and all while preserving the control and independence that being private allows.