The Not-So-Sunny Side of Initial Public Offerings

- 17 January 2022 17:36 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 - Although IPO seems to be the dream of many startups with its perks of good publicity and speedy funding, there are also some downsides for a startup to join IPO. These include increasing market pressure, potential loss of control, and higher transaction costs.

Market pressure
The pressure to perform well can be very challenging for company leaders, especially those who are used to doing what they believe is best for the company.

After a company goes public, it is closely monitored by experts and investors to see if it will meet its long-term goals. If the company doesn't meet its targets, its stock price will decrease. This could cause the CEO to resign or be replaced.

Potential loss of control
One of the biggest disadvantages of an IPO is that it gives up the company's founders' control over the organization. This is because the leadership team needs to keep the public happy as long as they have voting power.

Since the public funds are used for the company's operations, they expect the CEO to act in their best interest. If the shareholders are not satisfied with the company's performance, they may force the CEO to resign.

Higher transaction costs
The cost of an IPO is usually high. The most considerable expense that a company has to pay is the underwriter's fees. This amount ranges from 5% to 7% of the company's gross proceeds.

Top-line expenses for a company that raised $100 million or more are expected to be around $1.5 to $2 million. Aside from the fees, companies also have to pay for other expenses such as legal fees, registration fees, and printing costs.

Read More: Asia IPO Queue in 2022 Sees Big Names on the list

Editor: Suksmajati Kumara

Source: businesstimes, ipohub


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