CHAPTER 26 Initial Public Offering

“The canvas isn't empty. It's full of whatever you imagine it to be full of. My art is so conceptual that not only do I not tell, but I don't even show. All I do is sign the canvas and try to sell it.”

—Jarod Kintz, Author

Making the announcement to issue common stock on the public exchange, or “going public” for the first time, holds a special cachet in the world of venture capital–backed companies. It often marks the coming of age of companies, so entrepreneurs see it as the epitome of success. But the regulatory and market complexities are significant and have impacted the initial public offering (IPO) dynamics significantly.

A decade ago, an IPO was within reach for companies with annual revenues between $30 million and $50 million that showed a profitable quarter and had a good board and management team. After the dot-com crash, it was the larger, more mature companies with revenues of $150+ million that were seen as suitable candidates for public offering. This, combined with regulatory challenges, had the effect of stretching out IPO timelines for companies.

If the company is ready and the markets are favorable, the public offering is certainly a better option, because most acquisitions don't generate the killer returns that public offerings do. Because IPO-ready companies can be affected by market downturns and regulations, the volume of investment returns for investors may be driven more by acquisitions than public offerings. Consequently, ...

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