When it comes to an exit, there are differences between getting acquired and going public. While an attractive acquisition means payouts for the founders and employees, it can often be an endgame. Going public is more like restarting, just on an open stage. Being a public company means you’re in the public eye, you lose some of the freedoms a private company has. You’re expected to hit quarterly and annual targets, please the shareholders, and continue doing everything you did as a private company, just with less flexibility. But in the end, going public leads to more resources and opportunities too. Critically, going public gives shareholders liquidity (stock they can easily buy or sell), and is often a relatively inexpensive way to raise capital to continue funding the company (for qualified IPO candidates).

Now, going public is not easy. A number of outside factors are involved, first of which is the ‘IPO window’. The ‘IPO window’ is the period of time during which investors have an appetite for startups. This window opens and shuts too though, sometimes in a controlled manner and sometimes in an uncontrolled manner. A ‘controlled shut’ window occurs during certain points in the year, such as the month of August, when investors are not looking at deals due to vacation or family time, or during major holidays. ‘Uncontrolled shut’ windows are when unforeseen reactions from the market take place, such as the housing bubble burst in 2008, which shut the window for an extended period of time. As of June 2015, the window is open, and the IPO market is strong, and it will continue to open and close following these controlled and uncontrolled events. One likely upcoming event to watch will be the Fed raising interest rates, which may temporarily close the window.

Another factor that IPOs deal with is the ‘quiet period’. This is the period of time during the IPO preparation when the company begins to draft documents for the SEC. During this time nothing from a public relations standpoint can be outside the norm. This is because the documents the organization is creating are the ones that will be accompanying the IPO. As the company gets ready to go public it must also choose an exchange. While the NASDAQ and New York Stock Exchange are both well-known markets, there is a difference. The NYSE has a human element i.e., actual humans on the trading floor. This human touch entices some companies to the NYSE. Despite this, it does not matter what market a company launches its IPO on, so long as the company creates value for its shareholders. 

IPO candidates also have to choose an investment bank. Companies should look into two types of banks: first is the bulge bracket bank, such as Goldman Sachs, which has a number of clients and some of the best people around. Big banks have huge reach and plentiful of resources to get a company public successfully. Wise companies often also hire smaller investment banks to co-manage the IPO. Smaller, ‘boutique’ shops will frequently put more time into researching a company and analyzing its performance.

Taking a company public involves a lot of moving parts, and is an exciting time, but how much does it cost and how long does it take? Both are great questions to ask. A company that is planning to go public usually starts to plan 12-18 months in advance before the formal process takes place. At this point staffing is important. A company wants to have a good team to help prepare for going public and for life as a public company after the opening. As with any game, a poor team can lead to disaster. Once the formal process starts, the actual IPO event comes quickly, around ten weeks. At the end of the day though it is costly. After going public you typically owe money to the banks (usually around 7% of total amount raised) and then payments to lawyers, accountants, and any other expenses. The benefits of these costs though are a huge amount of capital and room to grow your business. The cons are less freedom and flexibility.

So how then does a company with no profits go public? If an IPO is feasible then there are a couple steps that the company must undertake to go public with no profits. First, the IPO window must be open. Investors will need to want to invest in a company that they can take a risk on, that will become profitable. No window? Then that company is not going public anytime soon. Next, the company has to sell the vision. If the company believes it can go public and be profitable, then the team has to sell the vision to investors too. If a company times it right, and has a great marketing team, then even without profits a company can go public.

An IPO or acquisition can be an exciting time for a company, even though it takes a lot of work for either of the two to be achieved. Regardless of going public or getting acquired, a company should focus on two things: pleasing the customer and focusing on the dynamics of the company. As long as a company works to be the best it can be, while delivering outstanding performance to the consumers, they will be successful in the long run.

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