What is meant by Initial Public Offering (IPO)? Discuss the problems of raising money by an entity in public markets and evaluate what implications an IPO could have on the startup funding. (200 Words)
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IAS Parliament 5 years
KEY POINTS
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.
Problems of raising money
· Startups with no clarity on whether their idea would succeed. Quite naturally, only risk capital was available to startups.
· Part of this frustration among entrepreneurs was misplaced, in my opinion. You can’t take huge sums of money from an investor and expect the investor to just be a bystander.
· Anyone who believes venture capitalists (VCs) don’t give operational freedom need to see how tightly public markets control a company’s direction.
· A public company that is not managed well also runs the risk of being taken over by someone who believes they could run it better. So the belief that a startup will have total operational independence when it raises money from the public is a convenient illusion.
· Startups that are burning money to acquire customers with no clarity on whether the business will ever be profitable or sustainable cannot be allowed to take money from the public.
Implications of an IPO
· Small startups that can be run profitably are the best candidates to raise money through an IPO. They can retain control, and provide steady returns to their investors.
· Venture Capitalists and private equity investors are generally not interested in companies that don’t aim to disrupt and grow.
· The via media provided by SEBI and the stock exchanges to help startups raise money through this route is helpful for a certain category of them.
· These startups are huge capital guzzlers. The limited option of listing on the small and medium-sized enterprise platform will not quench their appetite for capital.
hema 5 years
Kindly review thank you
IAS Parliament 5 years
Good attempt. Advantages of IPO not needed. Keep Writing.
Shivangi 5 years
Please review. Thank you.
IAS Parliament 5 years
Good answer. Keep Writing.
DHARU 5 years
Kindly review!!
IAS Parliament 5 years
Good answer. Advantages of IPO not needed. Keep Writing.
Neha 5 years
Please review
IAS Parliament 5 years
Good answer. Advantages of IPO not needed. Keep Writing.
