Our social muscles, as of late, have atrophied. It is the reason that people feel it normal to weep openly on social media. Or think anyone actually wants to watch them bake banana bread (the only person I want to watch virtually bake banana bread is Stanley Tucci – Fran Lebowitz would never – or else I’d watch her too). Or that Bo Burnham’s musical-comedy special ‘Inside’ that features a bedraggled white man in a claustrophobic apartment, feels unnervingly “relatable”.

 

A few months ago, I went to a nice bar in dirty sneakers and baggy Levi’s.
My hair – unbrushed, face – unwashed, brows – alarming.
It has become the status quo, even on a Saturday night, to arrive undone. (Or so I thought – pandemic and all). Turned out I missed the memo that we were back in action with the full expectation of pre-March-2019 club garb – eyelashes, heels, shuffle-your-legs-tight dresses (although I never wore these even at the best of times), etc. 

 

After recovering from the initial embarrassment of being so wildly underdressed and unkempt, I began to notice the sticky feeling of anxiety finding a home in my palms and stomach. It was an anxiety, I later realized, for normalcy. For the baggy fit of conversation that hasn’t fully found its place. It was an anxiety for Going Public.

 

And in what I would argue to be my best transition to date: 

I am going to cover all the pros and woes of why a company may or may not choose to: GO PUBLIC!!**[spaceship emoji and other finance things I don’t understand]!@*

 

 

The what: 

 

If you don’t already know, not all companies are public. Meaning, you can’t just run about on your WealthSimple trading account buying up any company you so choose. 

 

A company first needs to list its shares on a stock exchange through something called an Initial Public Offering (IPO). In the simplest words, an IPO refers to the process of offering shares of a private corporation to the public. Think of it as a non-misogynistic coming-out-party (in reference to debutante balls, not sexual orientation). The company gets all gussied up to be bought by institutional and retail investors, just as young women used to cut off their oxygen supply with corsets to be shown off to eligible bachelors. 

 

 

The why: $$$

 

The biggest benefit of going public is the capital raised (more money than you could raise privately, usually, unless you already belong to the 1%). Obviously, when a trendy something (a miniature Coach purse in ’09 anyone?) becomes available, there is a rush of keen investors wanting to buy it. This increase in capital can then be used by the company to fund research and development or pay expenses and debt. 

 

IPO’s often generate publicity, introducing their products to consumers that may otherwise not have heard of them. Eventually, if the product isn’t Cheetos lip balm or Clairol’s 1979 Touch of yogurt shampoo, that publicity could lead to increases in market value. (The fact that Clairol thought a yogurt shampoo was just what the American consumer needed – leading to several reported cases of confused people eating shampoo – makes me think that the world is not newly deranged, it always has been. This revelation is somehow comforting). 

 

 

The other why: Exit strategy

 

An IPO can provide company founders with an exit strategy. An exit strategy, broadly, is a conscious plan to dispose of an investment in a business venture or financial asset. For instance, when an investment or business has met its profit objective, founding members may choose to cash in on their hard work and success – freeing up time to begin a new venture. 

 

 

The disadvantage: A sh*t ton of paperwork

 

Going public is not as easy as strapping on a dress and walking down a spiral staircase to be trotted out as marriage material (I have never thought deeply about a debutante ball until this moment – and if you can’t deduce – I’m truly horrified). When companies go public, they must make extensive disclosures and submit to stringent regulations…

 

Oh hey, SEC (Securities Exchange Commission)! Ever since its birth in 1934 (made to help restore investor confidence in the wake of the 1929 stock market crash), the costs of complying with SEC rules are getting higher and higher. New fees for things like financial reporting documents and investor relations departments are making going public a little less desirable. 

 

This is why a private company that plans to go public hires something called an underwriter, usually an investment bank, to consult on the IPO and help it set an initial price for the offering. Underwriters help management prepare for an IPO by creating key documents for investors and scheduling meetings with potential investors, called roadshows. Yes, roadshows. I couldn’t make this up. How utterly tacky for million-dollar companies to show themselves off at a thing that makes you think of middle America and mullets. On the other hand, the financial industry is nothing if not inelegant. 

 

 

The other disadvantage: increase in public scrutiny

 

Market pressures often compel public companies to focus on short-term results instead of long-term growth. 

In other words, public scrutiny can sometimes not work towards a company’s overall best interests. More often than not, investors are looking for short-term growth – especially the traders with access to institutional capital (and therefore the ability to actually move the market). Any drop, any plateau, or any mistake, is immediately picked apart, and may have a negative impact on the company’s stock price – even if their long-term prospects haven’t changed. This lack of control over what the public perceives to be the value of their company, is a major risk to being public. 

 

Though public attention should theoretically keep the corruption out – companies instead hire more and more skilled professionals to hide their mistakes, or straight up lie (ahem, Luckin Coffee fraud case). When you link an executive’s bonus to better earnings, and therefore better market moves, it’s not a surprise that management will sometimes behave questionably to boost earnings. And thus, the cycle of corruption and deceit continue to drown the sector, like lip filler in LA. 

 

 

The end for now:

 

As with all things besides good gin and your grandma’s iced tea, there are advantages and disadvantages. In terms of IPO’s, these assessments are evaluated during the underwriting process to determine if it is in the best interest of the company for that time period. In terms of going public in the more existential, personal sense, I will be here, “quietly waiting for the catastrophe of my personality to seem beautiful again, and interesting, and modern.” I’ve been reading too much Frank O’Hara (if there is such a thing) and still have yet to handle my eyebrows.

 

Until next week. 

 

Written By:

Madelyn Grace

Maddy has graciously allowed the Equity.Guru audience to take a look into her investor education journey - and is here to ask all your questions, with a heavy dose of millennial cynicism and good humour (swear it's not oxymoronic). With an EngLit degree from Ryerson University, and a pedigree that includes having been killed on CW series Supernatural twice, she fits right in with the rest of the Equity.Guru team, making even the most dull financial topic approachable. Talk to her about feminism, the acting world in Vancouver and all your financial woes. Don't talk to her about pineapple on pizza, NFTs, or how cheesecake is really a pie.

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Investor Education
Series
exit strategy
private-going-public
SEC regulations
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