When most people think about a company raising capital, they think about a private company going public – selling an initial public offering (IPO) of stock. An IPO can indeed be an effective means of raising capital for corporate ventures, and it has many upsides:
Money to grow the business: With an infusion of cash derived from the sale of stock, the company may grow its business without having to borrow from traditional sources, and it will thus avoid paying the interest required to service debt. This “free” cash spent on growth initiatives can result in a better bottom line. New capital may be spent on marketing and advertising, hiring more experienced personnel who require lucrative compensation packages, research and development of new products and/or services, renovation of physical plants, new construction and dozens of other programs to expand the business and improve profitability.
Money for shareholders and others: With more cash in the company coffers, additional compensation may be offered to investors, stakeholders, founders and owners, partners, senior management and employees enrolled in stock ownership plans.