In an ideal world, you wouldn’t need to take anyone else’s money to grow your business. You’d just take your ample profits and reinvest them back into the top line, bootstrapping your way into the Fortune Global 500, with full control.
On Earth, getting into the upper echelons of corporate success generally involves taking some form of equity funding, either from private investors or through the capital markets.
The latter has recently lost its lustre. The number of listings in the UK has been falling for years, partly due to firms choosing to float in New York instead, and partly because of the rising availability of private equity and venture capital.
It’s easy to see why this might seem preferable to going public, when you look at the fates of some companies that IPO’d to great fanfare in recent years.
For example, Tom Joule floated country fashion retailer Joules in 2016, in an IPO that valued the business at £140m. Following a stock price death spiral, he teamed up with Next to buy back the company in late 2022, by which time it was worth only £34m.
And then there’s Babylon Health, a health tech darling once valued at $2 billion. Shares collapsed in 2023 following concerns from regulators about its governance and patient safety practices. A few months later, the former Growth Index company was ‘sold for parts’.
This is not to say that going public caused the problems at Babylon or Joules. But it’s undeniable that when something goes wrong as a public company, it attracts a lot more unwanted attention, quite possibly making it worse. So is it worth it?
IPOs: The good
Let’s say you’re a founder looking for growth capital and/or a partial exit, and you wanted to list the pros and cons of going public.
The most obvious upside is that there’s an awful lot of money in the capital markets that can be accessed not just on floating, but also later on through secondary share listings. Borrowing is also normally on more favourable terms than for private businesses.
Listing makes it easier to give early investors liquidity, and to conduct M&A, because you can pay for acquisitions with shares as well as cash. It allows you to incentivise executives with stock options, and as a founder it means that you are less likely to clash with a single controlling shareholder.
And of course there’s nothing quite so good for boosting your credibility as a business than having its name running along the CNBC or Bloomberg tickers.
IPOs: The bad and the ugly
But the downsides of listing are also pretty steep. The IPO process involves a lot of advice, marketing and underwriting – and investment banks and magic circle law firms don’t exactly provide these services on the cheap.
It can also be extremely distracting – and stressful – for a founder to have to hawk their business on the financial markets while simultaneously trying to run it. (A top tip: if you go down this route, take on additional capacity at a senior level to take the slack.)
The distractions hardly end once the listing has taken place, should you choose to stay in an executive capacity. Aside from the onerous task of quarterly reporting, which can drag you towards excessively short-term goals, your new job will involve dealing with major shareholders, proxy advisers, analysts and the financial media.
This can be time-consuming, but it can also be deeply unpleasant, if you fall out with them. Public companies, after all, cannot choose their investors, as THG (formerly The Hut Group) founder and CEO Matt Moulding discovered after listing for a valuation of £5.4bn in 2020.
Shares have collapsed 90% since then, with Moulding falling out with the City, blaming short-sellers and stating publicly that he wished he’d never floated the company. Investors, for their part, were concerned about the company’s governance – Moulding was forced to give up his chairmanship in 2022, and in 2023 his ‘golden share’ that had allowed him to veto hostile takeovers (another risk of public listings, if your shareholding goes below 50%).
Superdry founder Julian Dunkerton had a similar drama in 2019. Following a bitter struggle with management over the group’s strategy, Dunkerton managed to regain executive control in 2019, leading to the board resigning en masse. As it happened, he wasn’t able to steady the ship – the company reported a £148m loss this year, and its shares are now worth 7% of what they were on listing.
The bottom line
These horror stories may seem enough to put anyone off, but listing will be the right course of action for some companies – indeed, most companies, if they grow big enough. There’s a reason the world’s largest businesses are almost all public.
And you also have to consider the counterfactual: what would have happened to Superdry or Joules or THG had they not listed? There’s no guarantee that things would have worked out better had their founders continued to rely on bootstrapping or private investment instead.
Ultimately, there’s always a cost – and a risk – when you take someone else’s money. But when your ambition for your business is growth, it’s a risk you’ll eventually need to take.
All you can do is enter into it with your eyes open, and choose the best option both for your business and for you as the founder.
ORESA can support you with your growth plans, whatever kind of business you are. Find out more about how we architect and recruit for growth here.
