A Crash Course on Initial Public Offerings and What They Mean to Businesses

- 17 January 2022 17:34 WIB
Coinbase's stock is an example of an American depositary receipt. (Unsplash/Jeremy Bezanger) ((Unsplash/Jeremy Bezanger))
Coinbase's stock is an example of an American depositary receipt. (Unsplash/Jeremy Bezanger) ((Unsplash/Jeremy Bezanger))

JAKARTADAILY.ID – IPOs, initial public offerings, is the goal of many startup companies. The most common advantages for startups to go IPO include fundraising, credible publicity, and reducing the cost of capital.

One of the most commonly cited advantages of an IPO is the money it brings in. In 2016, the median proceeds from an IPO were around $94.5 million. This amount, combined with the many other advantages of going public, justifies the decision to do so. The money that a company raises through an IPO can fund various expenses, such as employee salaries, new technology, or even building new buildings.

Credible publicity 
One of the main advantages of an IPO is exposure to potential customers. It can also help a company grow by helping it gain more recognition from the public. Another advantage of going public is that it gives a company the credibility of being a public entity.

Before a company can go public, it must go through rigorous scrutiny to ensure its statements are accurate. This scrutiny can help boost a company's credibility.

The reduced overall cost of capital
The cost of capital is a significant obstacle for many companies, especially younger ones. Usually, they have to raise additional capital from banks or investors to cover their expenses leading to higher interest rates and a bloating cost of capital.

Before a company can start its IPO preparation, it must be audited regularly by a third-party firm. This step helps boost a company's credibility and lowers its loan rates, which are usually higher when compared to those of banks.

Read More: IPO 4 Issuers Experience Different Fate

Editor: Suksmajati Kumara

Source: businesstimes, ipohub


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