Transition of a startup into a public form is fraught with some negative consequences.

In ancient times, every entrepreneur dreamed of making his startup public and making it a successful company. Today, the pace of transition of startups to public form (IPO - Initial Public Offering ) came out of the dead zone, but still the pace is much lower than even half of this value 15 years ago. Smart entrepreneurs are now trying to avoid publicity, due to unpredictability and problems in the nature of the public company.

According to a recent report by the audit and consulting company Ernst & Young , 2014 was a successful IPO year. Nonetheless, they see danger in the fragility of the global economy and high market volatility. Today, 70% of successful startups are bought by large players, which is in some ways a safer and preferred way of growth and financing.

The reasons are much more complicated than the collapse of key investment banks in the United States a few years ago, so you should not expect a significant increase in the number of public companies in the near future, despite the growth of the market. In my opinion, the main reasons why IPOs have lost their attractiveness for an entrepreneur and investment prospects are as follows:

• The US IPO process is still confusing.
  Too many startups experienced financial losses and technical failures in the IPO process. King Digital Entertainment and Facebook are just some of them, opposing individual investors and startup managers. In addition, most ordinary investors are convinced that insiders get a basic IPO margin.
• Transition to a public form is an expensive process.
  Typically, the cost of an IPO for startups today ranges from $ 250,000 to $ 1 million. In addition, a huge amount of administrative and other key operational, accounting and communication resources are being spent. The processes of mergers and acquisitions in comparison with this look very simple.
• Constant pressure to increase profits.
  Ordinary shareholders usually consider only short-term prospects. Therefore, startups exist under enormous pressure, seeking to increase current income, and are not very appetizing for strategic investments.
• Startups that have become public are subject to the influence of competitors and critics.
  Startup executives usually do not want to disclose "cards" in prospectuses and reports of the SEC (Securities and Exchange Commission). When dealing with thousands of shareholders, you often come across criticism, which in itself becomes an ordeal.
• Compliance with the Sarbanes-Oxley Act is a heavy burden for the company.
  According to it, all public companies of any size must immediately comply with the SEC requirements for full reporting. It does not help small public companies that can not be competitive in the process of accounting, documentation and reporting of the necessary reports.
• Public companies are always under threat of absorption.
  Friendly or hostile capture attempts are just two of the many ways that founders can lose control of their own company. The board of directors, as well as shareholders, are no longer part of a team focused on the vision of the founders of a startup.
• Increased exposure to risk commitments.
  The leaders of a public company are at risk of civil and criminal penalties for lying or misleading statements. In addition, employees may face liability for misrepresenting information in public communications and SEC reports. Managers may also be involved in insider trading and in-service operating procedures.
• Artificial market fluctuations, as a rule, beat on public companies in the first place.
  Private companies tolerate strong volatility much better than public ones. Shareholders of public companies are easier to emotion and subject to the herd reflex than the actual market conditions.
• Founders do not fit into a public company.
  Most simply do not use all the capabilities of analysts who satisfy the requests of shareholders and with the requirements of legal reporting. They know that they can quickly reject those who do not support the right image and the right relationships with people they don’t like.
• The image of large public companies is negative.
  In the past couple of decades, the image of the head of a large multinational company, such as Thomas Watson at IBM and Henry Ford, has faded. Now, the mistakes of large companies, such as Enron and BP, have created a new image of public companies, greedy and not caring for anyone else.

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These negative aspects largely negate the potential advantages of an IPO: an increase in startup capital, the possibility of a huge increase in equity, greater access to investors, a market for its shares, the ability to attract first-class specialists , and other potential opportunities for a public company.

Thus, most startups, even not to mention an IPO, when applying for angel investments, most business angels will react negatively to the mention of an IPO. It is best to reserve this opportunity for later, when you have a well-established business model, a large market share and substantial income.

More importantly, make sure that you really want to abandon the entrepreneurial lifestyle in favor of the position of public representative of the company. I bet that Mark Zuckerberg from Facebook from time to time catches himself regret, despite the fact that he has cost $ 33 billion.

What is an IPO and why is it needed?