The Reality of the Situation
Though initial public offerings (IPO) are perhaps the most sought-after form
of financing, the fact is, surprisingly few companies can hope to successfully
negotiate their way through the tortuous process.
The truth leads to a nasty little Catch-22. Many promising small companies
cannot obtain funding because they are private. However, without funding, they
can't hope to grow to the size and scale that would allow them to go public.
Why is being a private company anathema to the capital-formation process?
Because many investors believe that even if the company does well, without an
exit strategy
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Shop Talk: Investors frequently talk about "exit strategies," a fancy way to say "cashing out." Specifically, once investors put money into a company, they want to know how they can get their money back -- at a profit.
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for the investors to get their money out of the company, they will
never realize a substantial return on their investment. There might be some merit
to this thinking. However, the other side of the coin is that the company, which
is patiently funded so it is able to realize its true potential, has numerous
options for rewarding its shareholders.
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