Three Benefits of Going Public
Test whether an IPO delivers capital, liquid currency, and shareholder liquidity
- Difficulty
- Easy
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 95%
This model separates the advantages of an IPO into three practical components. The first is an influx of cash retained by the company for operations, investment, or strategic flexibility. The second is liquid acquisition currency: publicly traded shares have an observable market value and can therefore be used more readily in mergers and acquisitions. The third is liquidity for shareholders, especially employees and early investors who may have held illiquid equity for years. Leaders quantify each benefit and compare it with the costs of disclosure, regulatory compliance, market volatility, and quarterly scrutiny. The model helps determine whether going public addresses genuine constraints or merely satisfies prestige, valuation, or transaction pressure.
Origin
Extracted from Acquired's discussion of what Facebook would have gained or lost by remaining private.
Core principles
- 01An IPO should solve identifiable financing or liquidity constraints
- 02Public stock creates a priceable currency for acquisitions
- 03Employee and investor liquidity affects organizational sustainability
- 04Each benefit must be weighed against disclosure and market pressure
How to run it
- 1
Quantify retained cash
Calculate how much of the offering proceeds will enter the company's balance sheet after selling shareholders and fees are accounted for.
Pro tip Tie the proceeds to specific strategic uses rather than treating cash as inherently valuable.
Watch out A large headline offering can conceal that much of the money goes to existing holders.
- 2
Value liquid acquisition currency
Determine whether publicly priced shares would improve the company's ability to pursue acquisitions or other stock-based transactions.
Pro tip Identify realistic acquisition targets before assigning substantial value to this benefit.
Watch out A falling share price can make stock-financed acquisitions expensive or unattractive.
- 3
Map liquidity demand
Assess the needs of employees, founders, and early investors who cannot readily monetize private shares.
Pro tip Consider structured secondary sales if the liquidity need is limited.
Watch out Excessive selling pressure can undermine confidence around the offering.
- 4
Compare alternatives
Evaluate private financing, tender offers, secondary markets, and strategic transactions against the IPO's three benefits.
Pro tip Compare like-for-like outcomes rather than assuming private alternatives provide equivalent liquidity.
Watch out Private secondary markets may create fragmented ownership and regulatory complications.
- 5
Price the trade-offs
Balance the three benefits against disclosure obligations, operating costs, market pressure, and execution risk.
Pro tip Make the decision using several market scenarios, including a weak debut.
Watch out Do not assume favorable market conditions will persist through the offering process.
In the wild
Facebook retained billions in offering proceeds, gained publicly valued shares that could support future transactions, and created liquidity for employees and investors after eight years as a private company. Secondary trading had already introduced ownership and regulatory pressure, strengthening the case for a formal public market.
→ The IPO addressed real capital and liquidity needs despite severe execution problems.
A profitable startup with no near-term acquisition plans finds that its primary need is limited employee liquidity. The board compares an IPO with a private tender offer and concludes that only one of the three public-market benefits is currently important.
→ The company delays its IPO and addresses the narrower need privately.
Common mistakes
Confusing offering size with company cash
Separate primary shares that fund the company from secondary shares sold by existing holders.
Overvaluing public stock
Liquid acquisition currency is useful only when the company has credible transaction opportunities and a defensible valuation.
Treating all liquidity as equal
Secondary markets, tender offers, and public markets differ in access, pricing, disclosure, and regulatory consequences.
Is it for you?
Best for
It is best for late-stage companies deciding whether an IPO solves real strategic and stakeholder needs.
Not ideal for
It is not ideal for companies without sufficient operating maturity or a clear use for public-market benefits.
From the transcript
“there's sort of three things that uh that you get when you IPO. Um, three sort of like advantageous components to it.”
“The first is an influx of cash.”
“The second is the fact that if they're going to do MA transactions in the future, having public company stock way more valuable than difficult…”
From the episode
The Facebook IPO