Date
23 July 2018
An initial public offering can bring a lot of benefits to a startup, but it may also pose a distraction to its business of generating revenue. Photo: Reuters
An initial public offering can bring a lot of benefits to a startup, but it may also pose a distraction to its business of generating revenue. Photo: Reuters

Should a startup aim for an IPO?

Is launching an initial public offering (IPO) the ultimate goal of startups?

In theory, if a business develops well and generates positive cash flow and sufficient profit, it doesn’t have to seek a public listing.

An IPO costs a lot of resources. After listing, a company has to deal with numerous transparency requirements. As such, management may not be able to focus 100 percent on its operations like before.

However, some argue that an IPO is a symbol of success and recognition.

Also, an IPO can bring some tangible benefits. The listing status alone can be worth between HK$400 million and HK$700 million, based on the market value of a shell company.

The status of being listed also enables a company to open up more financing channels. This is particularly important for tech firms that intend to speed up its growth process by acquiring other companies to get hold of the latest technology.

This is why some startups decide to go for an IPO while others are not in a hurry at all.

Cloud storage firm Dropbox filed for an IPO last month. With a revenue exceeding US$1.1 billion last year, the company has posted revenue growth and shrinking loss year after year. It also shows good cashflow and profit prospects.

Dropbox probably wants to let the public know more about its business model through the IPO deal.

Meanwhile, home-rental platform Airbnb said it won’t initiate an IPO this year. Chief executive Brian Chesky said in an open letter that he is trying to “build a 21st century company”.

I believe the company wants to focus on boosting its long-term value and an IPO may be considered as a distraction at the moment.

This article appeared in the Hong Kong Economic Journal on March 8

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Information Technology Federation Chairman

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