Exit Option: Floatation - Initial Public Offering (IPO)
Exit Strategies
"The much talked about IPO route, (popular with dot com companies), is without question, the most difficult, most expensive and quite rarely taken route to exit a business. It will normally cost ~£1 million, it will take quite a long time, and at the end there is no guarantee that is will be successful."
Floating your business - selling shares on the stock market - can be highly rewarding financially. It lets you realise your investment in the business by making it easier to sell part or all of your stake.
But any financial exit from the business is likely to be partial. Potential investors will be wary if you sell all your shares - and you may not be permitted to do so.
Any float will also affect other existing shareholders or investors. The shareholders agreement may give existing shareholders pre-exemption or voting rights which may make a float more difficult or reduce the amount you realise for your investment.
Relatively few businesses can realistically expect to float as they are unlikely to be able to raise funds to finance the necessary growth to attract investors.
The most likely source of funding for high-growth businesses is venture capital investment. However, it is important to check exactly what return a venture capital form is expecting on its investment. For more information,
Once you have secured funding you'll need to build a record over a number of years of delivering strong earnings and profits - and develop a business plan showing how you'll achieve further rapid growth.
Other steps you'll need to take include:
- building a strong management team with success in other businesses
- setting up a limited company
- developing operational, financial and management systems robust enough to handle both rapid growth and the additional legal requirements of listed businesses
- appointing high-quality financial advisers
Because flotations are unsuitable for most businesses, it is important to consider your other exit options - a trade sale in particular could be a better alternative. For more information on trade sales, see the page in this guide on exit option: trade sale.
For further information on floating your company, see our guide on flotations, listings and IPOs.
