Today, there are a record number of small businesses in the UK, and it is fair to say that they form the backbone of the UK economy. There is a conventional wisdom that businesses go through certain steps in their evolution, and much like a butterfly emerging from a cocoon, floatation on the London Stock Exchange is often perceived as the final step in achieving complete maturity.
If your small business has enjoyed steady and sustained growth, and you are looking to take it to the next level, the chances are, an IPO has done more than cross your mind. But before you start drawing up shareholder agreements and preparing for the due diligence, here are a few questions to ask yourself.
It’s a fundamental question, but if the answer is simply “because it’s the logical thing to do,” take a step back and think again. Over in the US, companies like Airbnb and Uber have resisted calls for an IPO, despite both having revenues in the billions.
A common reason is to raise funds, and that is fair enough – a public floatation will provide the money to finance growth if your market allows it. However, there are other ways of achieving the same objective.
In the case of Airbnb and Uber, they preferred the control and privacy that private equity brings as opposed to an IPO. If it is just a case of raising funds, then going down a similar road, or seeking out a venture capitalist partnership will achieve the same thing, but without the public scrutiny and internal control obligations.
Of course, these are not for everyone, either. When venture capitalists are onboard, you will feel them at your back every moment, pushing you to push the business to its absolute limits. For some, that is exactly what is needed, while for others, it is a waking nightmare, and takes all the joy out of the enterprise.
The world has learned from the horror stories of Enron, Barings and WorldCom. Today, the corporate governance rules for listed companies are taken deadly seriously and have to be rigorously applied. That means a proper board, audit committee, remuneration committee and all the rest.
Then there is the additional work that will land on your finance team, to provide regular updates for shareholders. Don’t misunderstand, extra scrutiny is no bad thing, but it does mean putting in the hours.
If there’s one thing investors don’t like, it is surprises. For a business to be successful on the stock exchange, it needs high predictability and low volatility. Slow and steady growth, with realistic prospects of maintaining the same trajectory, are the order of the day. Anything less, and it might be better to park the idea for a while.
Floating on the stock exchange can be a great step for a business. But it has to be done at the right time and for the right reasons.
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