Initial public offering (IPO)

An IPO is the first time a business raises finance publicly (before an IPO, you can only raise funds privately). Going public allows you to raise large sums of money from new investors (e.g. for expansion) and gain a large number of new shareholders while retaining control of your company. Existing (private) equity investors might drive an IPO because they’re looking to sell their stakes in your business.

An IPO is often called long-term, patient capital because once you have gone public, you can raise money time and time again, over years and even decades.

Public companies have to disclose financial information regularly. This means keeping shareholders and the market (including your competitors) updated with half-yearly and annual results.

Getting to an IPO stage is a milestone. Being a publicly traded company means your business has raised its profile to ‘blue-chip’ status.

If you want to raise capital to fund further growth or finance existing debt, being listed on a stock exchange opens your business to a vast number of potential investors with an unlimited number of financing options.

Also, an IPO is an excellent way of monetizing assets.

Equity financing – refers to the capital an external investor injects into your business in return for a share of ownership (equity) and/or some control of the business. Equity finance investors therefore have a claim on your future earnings but, in contrast to a loan, you don’t pay any interest – nor do you have to repay capital. If you opt for equity financing, you’ll sell a stake in your business in return for funds.

Debt financing – Debt financing is a broad term that covers any type of loan that you pay back, with interest, over a set period of time. A loan can come either from a lender – see business loans – or from selling bonds to the public.

Private equity – is a type of equity financing suitable for established private businesses. Private Equity funds give your business money in return for a large or controlling share in your business.

Venture capital – is financing given to startups and early-stage businesses. Venture capital funds look to invest larger sums of money than business angels – typically more than £250,000 – in return for an equity stake. Venture capital is most suited to high-growth businesses with long-term growth potential, i.e. those destined for sale or public listing (IPO).