At some point, many entrepreneurs have to face this challenge: choosing a financing option to maintain sustainable growth.
In addition to bank loans, the sale of shares privately or crowdfunding, we want you to know about an option available to the most valuable companies: we are talking about IPOs.
In this article you will learn everything about the Public Offers of Sale: what they are, what are the conditions that your company must meet to carry out this process and the advantages that operating on the stock market brings to startups and large companies.
What is it and what does it mean to open an IPO?
An Initial Public Offering (IPO), from the English Initial Public Offering u Public Offer for Sale (OPV), represents the incorporation of a company to the stock market by issuing its first shares to attract public capital, come from different segments of society.
An IPO is like a “pilot test” on the demand and the value that a company’s shares can have in the stock market, since the amount that is issued is small.
However, it is still an excellent form of financing for a company that wants to maintain control of its business.
For startups, IPOs open the door to new shareholders who will leverage their expansion at a low cost of financing.
For large companies, IPOs help raise new funds and spread business risk among a large group of shareholders.
What is the process for issuing an IPO?
In order for IPOs to operate, there are certain processes that are carried out between the different agents of the stock market. These agents are:
- stock exchanges,
- banks and brokerage houses,
- the market regulatory commission,
- the participating broadcasters (the companies),
- institutional investors (Afores, banks, investment funds, insurance companies),
- Physical persons.
If your company has decided to open an IPO, you must contact banks or brokerage houses to place the shares on the market. They will directly handle the purchase and sale of shares, regulated by a commission that is in charge of taking care of the transparency of the process.
Once the shares are for sale on the stock exchanges, institutional or personal investors can buy them, as long as you offer them adequate value and attractive returns.
What path should a company follow to open an IPO?
Like human beings, companies also have cycles that allow them to enter the market, plan their growth and reach maturity.
Learn about the stages that companies usually follow until they open an IPO!
1. Introduction stage
In the first stage, companies make their first sales with which they manage to validate their business idea, what can be done from an MVP (Minimum Viable Product), for example.
Since they are just entering a new market, their experience is scant. Therefore, the operational risks of the business are high.
2. Growth stage
The second stage allows companies to achieve a exponential growth in sales. With this income, they are building a fundamental financial muscle to sustain the next stage.
3. Stage of maturity
In the third stage, the volume of income has stabilized. The operational risk has been significantly reduced thanks to the experience acquired by managers and collaborators and, therefore, the company begins to be more attractive to investors.
At this point the company has grown considerably. However, it still needs leverage to adapt to new needs such as portfolio diversification or obtain liquidity to pay debts, for example.
This is where entrepreneurs and entrepreneurs should start reviewing their financing options.
With the size, experience and solidity of a mature company, IPOs appear as an excellent alternative.
What factors to take into account to finalize an IPO?
So, what are the conditions that a company must meet to open an IPO? We have listed some characteristics that every company that considers operating in the stock market must have.
1. Strong organizational culture
The organizational culture of companies that want to have an IPO must be strong and transparent.
This with the aim of maintaining the highest level of productivity and ensuring the expected returns to investors.
2. Customer orientation
The ultimate goal of any company is to address the problem of its ideal client. This is only achieved with a marketing philosophy known as customer orientation.
It is useless to have infinite financial resources if all the capital is going to remain in bureaucracies or internal processes of a company.
The purpose of funding should be to provide better service leading to an increase in the level of sales.
3. Growth prospects in offers and services
Nobody wants to invest in a business that looks stagnant, do you think? Something that gives confidence to many investors is the set of expectations that a company manages to communicate about its growth.
Having in mind feasible projects such as office remodeling, hiring new employees, R&D development or the creation of new products will position you as a strong company in the stock market.
4. Brand strength
Another aspect that makes your company more attractive to investors is the weight of your brand, which is increased with good branding strategies.
A company with a recognized name and that is engraved in the minds of consumers will grant a higher value for your actions.
What advantages does an IPO bring to businesses?
Now, surely you must be wondering if it is worth giving a part of your company to obtain financing. Well, you will see that the advantages of trading stocks on the stock market are worth it.
1. Capital raising
The biggest advantage of IPOs is access to public capital with which you can finance your projects. By selling shares for a good value, you will have liquidity to strengthen your operations.
2. Leverage without financial cost
The resources from an IPO do not generate interest or have a settlement term like bank loans, for example.
In addition, shareholders in a company open to the public expect a lower return than in a purely private equity company.
3. Increased Brand Awareness of the company
By opening trades in the stock market, your brand name will inevitably receive more visibility and recognition among other businessmen and potential clients.
4. Diversification of risk and ownership of shares
By issuing shares in an IPO, the operating risk of your business is diversified across many shareholders. This protects you and also allows you to remain in control of your company.
5 companies that participate in the stock market when opening an IPO
We have listed 5 companies that opened their IPO’s and, now, are part of the most valuable companies in the world.
1. Free Market
Since 2017, the largest e-commerce in Latin America became the first Argentine company to be part of the Nasdaq100 ranking, which brings together the world’s leading technology companies listed on Wall Street.
The Uber IPO it was one of the largest in the history of the technology industry. The opening of this unicorn to the stock market meant an expansion in its portfolio of services.
In addition to transporting people, Uber now rents electric scooters, engages in messaging and food deliveries.
This Argentine multinational software developer has been listed on the New York Stock Exchange since 2015. The company has operations in Latin America, the United States, India, Spain and the United Kingdom.
Traditional companies, such as Cemex, are also attractive in the stock market. Founded in 1906, the Mexican multinational has been listed on the Mexican Stock Exchange since 1976 and on the New York Stock Exchange since 1999.
The Colombian airline consortium opened its IPO in 2013 and since then has developed different initiatives that improve the experience of its travelers, consolidating its position as one of the most important airlines in Latin America.
Now that you know more about IPOs, why don’t you read about more successful cases to inspire you?
Enter our post about the most valuable companies in the world and continue learning techniques to grow your company.