Many startup companies dream of the day they’ll sell stock on the Nasdaq. A successful initial public offering will raise tons of cash for the business and give founders a big payday as they sell their privately held company shares. Or at least that’s the way it’s supposed to work. Unfortunately, sometimes aspiring companies that file paperwork with the Securities and Exchange Commission to go public don’t find enough investor support for their IPO.
If your IPO efforts flounder, what are your other options? Actually, there are quite a few. Companies that have prepared for an IPO usually already have extensive documentation on their market sector, management team, business strategy, current sales and profits, and sales projections. Business owners can use this information to interest other types of funders:
- Venture capital: Many companies that fail to launch their IPOs go back to the venture capital markets. Most have already raised venture capital in the past. If so, they can ask current investors if they might participate in an additional round of private funding. Another strategy is to technically reopen the last round of venture capital raised and add new funding to the round.
- Private equity: Sometimes one of the investment banks that backed or sponsored an IPO will take an interest in investing in the company once the IPO is put off. Private equity investments tend to focus on more mature companies.
- Private debt: Often overlooked as a funding source, private debt has some advantages over private equity. Private debt doesn’t usually require giving up a large equity stake in the company, though a small stake may be part of the deal. With a smaller stake, business owners retain more control over decision-making and company direction.
- Revolving credit line: Your IPO paperwork should make a compelling case to bankers that you are creditworthy. If your expansion project doesn’t require all the capital at once, apply for a revolving line of credit. As you make payments, the capital becomes available to borrow again.
- Grant money: With all your paperwork done, it’s a good time to investigate government grant money available for projects in your sector. You may have to shift priorities, but government funding could keep you afloat.
- Company sale: A popular alternative exit to going public, selling your company can help cash out investors and provide a retirement nest egg for company founders. The purchase price can also fill company coffers and fund growth. In many cases, company founders are able to stay on and manage the business if they want, or they may be granted stock in the acquiring company.
- Acquisition: At first glance it might seem hard to buy a company when your IPO funding doesn’t come through. But a strategic acquisition of a competitor or related-sector company that’s flush with cash might meet your fundraising needs. As for funding the acquisition, some investors provide money specifically for mergers and acquisitions, so you may be able to use your IPO documentation to find an interested investor.
When all else fails, there’s always one final option: Tighten your belt. Many failed IPO companies curtail new projects and delay the growth the IPO was meant to fund and simply wait for the IPO market to recover.
Business reporter Carol Tice contributes to several national and regional business publications.