1.2 Week 1 – Lesson 2

Title: Week 1 – Lesson 2 Discussion: Why do companies go public?

Companies can go public for a number of reasons rather than borrow money from banks, so they can raise capital. The big advantage is larger capital, without becoming further indebted. Equity financing does not involve regular interest payments as the financial burden is normally the case with bank loans, so financial stress is mitigated, particularly at the growing point.

While a public offering dilutes the ownership of existing shareholders, this trade-off can be acceptable if the company gains resources to grow and/or pursue innovations or new markets. And being a public company improves exposure, reputation, and credibility in the market, which can help them reach long-term growth targets, or obtain strategic partners.

But going public also entails greater regulatory requirements, disclosure obligations and loss of control for founders. That’s why companies generally think about an IPO only when the advantages of scale and access to capital are deemed superior to losing ownership and getting into greater complexity.