Some companies are remaining private because modern investors see private equity as ideal. Many investors prefer private companies because the value of private equity isn’t influenced by the buying and selling done within a stock exchange. You can only sell stock as a public company. “Going public” is the act of converting your company’s-fundamental value into public stock, which results in an initial public offering (IPO).
The idea of raising money by selling stock is why some business owners go public.
Fewer investors are buying the stock of brands that go public, however. As exciting as some public offerings might seem, investors have become less motivated by the prospect of new IPOs. Statistics show that IPO investing, in whole, has dropped by 52% since the ‘90s. Here are the top reasons why some companies prefer to stay private:
- IPOs Make no Money Without Buyers
Businesses that campaign an IPO only raise money if their stock sells.
Your IPO campaign might fail to find investors who’re willing to buy the stock that it promotes. The statistics for 2020 also show a growing potential for IPOs to fail, so going public might not be in your best interest today.
- Out Goes the Need for Shareholders
Some businesses don’t go public due to the fact that they’ll retain their full-company ownership without an IPO. Shareholders, who are public investors, buy the right to influence a company’s direction and its processes. A private company, instead, retains its right to decide on all business aspects under that company’s control.
- The Finances Don’t Matter—They’re Privately Held
Private companies have financial-balance sheets, but they’re not obligated to report their finances to the public. The Security and Exchange Commission requires companies with public stock, however, to report their yearly finances directly to the SEC. Private businesses only have to organize their finances in a way that legally pays their taxes.
What Would You Do?
Consider the control that a business retains if it remains private. Public offerings do present real-profiting opportunities, but the losses are costly should an IPO fail. Investors are reconsidering how they allocate their capital during this major shift in private investing within 2020. Putting your money into going public, instead, can lead you into unforetold risks.