In a private company, the business owner/manager is free to operate independently; however, once the company becomes publicly owned, the owner acquires as many partners as the company has shareholders, and is accountable to all of them. Shareholders expect steady growth in areas such as sales, proﬁts, market share, and product innovation. Thus, in a publicly held company, management is under constant pressure to balance
short-term demands for growth with strategies that achieve long-term goals. Further, often the inability to meet analysts’ expectations of short-termearnings can dramatically hurt the marketplace’s long-term valuation of your company.
—Restrictions on insider sales
Stock sales by insiders are usually limited. Most underwriters require that a company’s existing stockholders enter into contractual agreements to refrain from selling their stock during a speciﬁed time following the IPO, typically 180 days. This is considered the “lock-up” period.
Investors’ inquiries, investment-community presentations, and the printing and distribution of quarterly and annual ﬁnancial reports require a signiﬁcant time commitment by management. They often also require additional personnel or public relations resources.
—No turning back
The IPO process is essentially one way. Taking your company private again can be difﬁcult and costly.
Timing – the IPO “window”
The stock market is one of the most unpredictable aspects of going public. The term “market window,” which refers to the appetite and capacity of the stock market to complete IPOs, opens and shuts on short notice. Below is a graph of the “market window” from 1994 through 2003. From early 1994 through 1996 the window was open. Activity quieted in 1997 and the window virtually closed in 1998. 1999 was generally viewed as a “selective” period for IPOs, though certain sectors such as the Internet were hot. Since the market high in January 2000, the window has been closed, but increased IPO activity in 2003 coupled with a generally strong market suggests the future for IPOs may be brighter.