Growing Startups: M&A, Go Public Or Stay Private?

By April 16, 2021 June 17th, 2021 Blog Posts


CEO at Advanced Intelligent Systems, a practical autonomous robotics company with software and hardware modules.

Every entrepreneur hopes to see their startup succeed, but success can send you, your fellow founders, employees and early investors in one of several different directions. The thrill of startup success often gives rise to a set of new questions that key stakeholders must consider. When you want your small company to grow into one that is larger and better able to serve more consumers, following best practices for operations and financial discernment become more important than ever.

Exhilaration and trepidation often commingle when entrepreneurs map out the future of their passion. While many will struggle with the possibility of giving up control over a startup’s destiny, impartiality is paramount at such a critical turning point. Maintaining control is one option alongside other growth strategies that include merging with another company and filing to become a publicly traded firm.

Selecting the best option for your particular startup doesn’t need to be daunting. With each approach, there are pros and cons, so work with any colleagues and consultants that you think will help you sort through the distinctions to arrive at your desired destination.

Finding The Right Merger Fit

Sometimes, the choice is as obvious as the established market competitor that is looking to acquire a smaller company. While conducting research into potential partners to merge with, remember to also consider firms that are reaching out from other industries with hopes of finding a purchase into new markets.

Merging with a larger business and its established reputation can boost a startup’s prestige and credibility. In addition to tax advantages and economies of scale, potential benefits of mergers include expanded market access, improvements to operational logistics and increased brand awareness among consumers.

Potential disadvantages of merging with another business include legal expenses, resistance from existing stakeholders, loss of managerial control and a possible denial of the merger by government regulators. Turn to experienced board members or outside consultants for help with navigating a merger.

There are also times when a startup acquires another company. In either case, if you and the managers of another business agree that a merger will be mutually beneficial, be as transparent as possible with employees regarding new horizons and possible impacts to job stability.

Going Public

Considered by many to be the pinnacle of startup success and a management badge of honor, taking a startup public with an initial public offering can become an entrepreneur’s main focus and motivation. Instead of being acquired outright by another company through a merger and subsequent elimination of redundant roles, an IPO allows founders to steer their business toward substantial financing for the products and initiatives that matter most to them.

Resource hubs, such as IPOhub, exist to help startups become viable public companies. There is an entire consulting sector dedicated to helping businesses prepare for a public offering. A startup’s board of directors can also contribute by advising founders about pre-IPO imperatives such as audits and negotiations.

In addition to accessing levels of financing that were previously out of reach, an IPO offers a startup more publicity, greater flexibility and a way to use its stock as corporate currency for employee incentives as well as a new option for future financing.

Some of the disadvantages associated with a public stock offering include the complexity of accomplishing what needs to be done, the substantial expense, the red tape and the inherent uncertainty with the risk that the IPO will not generate sufficient interest among investors on the stock exchange.

Staying The Course

Something is changing in the world of startups and in the minds of business founders. While many still strive to find an exit and cash in from an acquisition or an IPO, some entrepreneurs are finding success, growth and financing while maintaining private control over their operations.

Instead of dedicating time and resources to pursue suitors among corporate boards and investment banks, more startups are choosing to wait until some organizational gray comes in to illustrate the company’s emerging maturity. Increasingly, startups are finding it possible to secure sufficient financing without needing to go public or become a target for acquisition.

One reason for startups to stay private is managerial control. Others include avoiding regulatory restrictions, remaining agile, considering a direct exchange listing over an IPO and economizing on operating costs. A privately held enterprise might also be better for current employees.

Among the disadvantages of staying private, a startup’s growth can be restrained when insufficient funds derail important plans. Private businesses might not get as much publicity as they would if they were publicly held, or they might even gain a reputation of being timid or indecisive.

Choosing The Startup Path

Some people consider any delay in taking a startup public to be a business management mistakeInvestors fear missing opportunities. Consumer expectations are constantly shifting.

As an entrepreneur, you must gauge your level of passion for your startup. What matters more to you, the potential to maximize your capital gains or the satisfaction you get while working to help your business succeed from the merits and innovations that you and your co-workers bring forth?

When your startup reaches a level of growth and success that attracts attention from outside investors, you will be faced with making choices about the future of the business and its stakeholders. Be sure to consider all the pros and cons of each option before dedicating your startup to taking one path over the others.

 

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