Per SEC rule, a company is obligated to go public once it exceeds 500-shareholder limit.
But other than for this reason, why do companies decide to go public and offer its shares?
What are the benefits of going public? of doing IPO?
1. ACCESS TO NEW CAPITAL - Primary benefit of IPO is that it is the cheapest way to raise large pools of capital. That is the main reason why firms go public. Companies get to the point in their life cycle where they need to raise large amounts of capital to grow and if you are a company that wants to raise upwards of 100 million dollars, the cheapest way to do that is go to the public markets. Why is public market the cheapest avenue to raise money? In the public market, a typical investor is well diversified. Thus, they only have to be compensated for bearing market risk, not for unique risk. Cost of capital, or return required by investor, is lowest when a firm is public as opposed to private because firm is selling to broad, diffuse group of potential owners.
2. ACCESS TO FUTURE CAPITAL - Beyond its initial public offering, the firm might be in a position in the future where it might need to do second or third offering of its stocks so that it can grow further. Statistics have shown that roughly 1/3 of US firms go back to equity markets within 5 years.
3. INSIDERS CASH OUT - There comes a point in the life-cycle of the company when Venture capitalists and other early investors, having invested for a long time or close to or beyond its investment horizon, are looking to cash out and IPO provides a mechanism through which they can cash out.
Some non-essential reasons why some firms go public:
4. GET ON THE "Radar Screen" OF POTENTIAL ACQUIRERS
5. IN ORDER TO USE STOCK AS CURRENCY FOR MAKING ACQUISITIONS
6. HIGHER PROFILE
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| David Kelley, IDEO |
David Kelley talks about "creative confidence" in this famous TED video.
His point, in essence, is that creativity is not the domain of only a chosen few.
Most people think that they aren't the creative type and shy away from tasks they deem requiring creativity because they fear that they can't do something creative. But he argues that, through a series of small successes of creative experience, people can transform themselves into the people who have the "creative confidence."
It might not be accurate to say and it might be misleading to say that people can transform into a creative type because saying so suggests that people are not creative in the first place but can become creative through Kelley's process.
Kelley's point is that people are naturally creative but they lose the "creative confidence" to be creative, somewhere along their life, most probably during early childhood. So it would be more accurate to say that people need to regain the "creative confidence" that they have lost than to say that people can change to have the "creative confidence".
How does one lose the "creative confidence?" Kelley gives an example of 3rd grader Brian. 3rd grader Brian was making a horse out of the clay and one of the girls who was nearby commented, "that's terrible. that doesn't look anything like a horse." and that discouraged Brian to make a horse ever again.
I had a fresh perspective on this issue because of my recent Junior Achievement(JA) volunteer activity. I taught 2nd graders as a JA volunteer and I was struck by how these 2nd graders were willing to raise their hands in every single opportunity they could get. When I posed a question or asked for a volunteer, all 24 hands of 24 students in the class would go up, wanting to participate and wanting to give his or her answer. I noticed that these kids weren't afraid to give a wrong answer and they weren't afraid to fail. I would say that these kids still have a "creative confidence." I talked to other JA volunteers who taught 4th and 5th graders and their willingness to raise hand or participate in class were quite different, more subdued. I think it's safe for me to conclude that some of these kids have lost their "creative confidence" as they advanced to 4th and 5th grade.
I presume that more of these kids will lose the "creative confidence" as they grow older. They will get more bruises and get hurt over the course of their lives by not-very-thoughtful people who hurt them with their words, put them down, and says things like “that’s terrible" or "that's stupid idea.” This is a sad reality and we need people to grow up with "creative confidence" somehow intact.
Accomplishing this is a tall order for society and if accomplished, our workforce would have more people with "creative confidence" and would be better off as a result. In the meantime, intermediary solution for companies is to recognize that employees in your workplace are naturally creative and set up a corporate culture to help them regain their creativity and unleash their creativity.
