2025 was supposed to be the year for the initial public offering (IPO) comeback, but as the NY Times indicates1, the volume expectations simply have not materialized. While multiple factors may be at play, including market volatility and uncertainty over tariffs, one other factor has made a big difference- the ability of companies to raise capital from private markets. That optionality has meant that companies have more flexibility to decide whether or not an IPO is the best choice for the business.
Raising capital without the demands of being a public company has many benefits. Public company status comes with additional responsibilities, including required quarterly and annual filings of financial statements and public earnings calls. While not required to, public companies often provide earnings guidance with forecasted revenue and profit and can experience pressure from shareholders to achieve certain targets. Staying private means companies can maintain a sense of privacy and have more control to take the company where they want to.
But while the demands of being a public company can be onerous, so too can the demands of holding private debt. Taking other people's money comes with requirements that many companies fail to manage effectively, maintaining certain financial ratios such as debt to earning before interest, taxes, depreciation, and amortization (EBITDA) ratio, prohibiting certain actions such as the sale of assets, and providing regular and timely lender reporting. In addition, private companies may be perceived as riskier given the lack of scrutiny and therefore could incur a higher cost of capital. Far too often, companies are not forecasting cash or are forecasting it poorly, leading to a cash crunch.
Financing is rarely free. Understanding the requirements and ensuring the business is prepared are critical for making the right decision.
Footnote
1. https://www.nytimes.com/2025/02/18/technology/tech-ipo-delays.html?searchResultPosition=1
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