Why do companies go public through an IPO and how do they do it?

Decades ago, businesses scaled slowly – step by step, manually, like a chess player in the early moves. Today, going public on the stock market in a matter of months has become the new norm, and the question of why companies go public is increasingly being discussed behind closed meeting doors and in negotiations with investors. The answer lies in the delicate balance between raising capital and strengthening reputation. It’s more than just raising capital. It’s a transformation into a public entity, where numbers and transparency become strategic weapons.

What is an IPO in simple terms

An Initial Public Offering (IPO) is a situation where a business offers its shares to the general public and all market participants through an exchange for the first time. This creates a transparent valuation mechanism, opens doors to substantial financing, and provides the opportunity to convert stakes into millions.

The question of why companies go public reveals basic objectives: to expand access to investment flows, strengthen positions among competitors, and increase visibility.

During its 2020 IPO, the marketplace Ozon raised $990 million, securing space for aggressive growth.

Company Goals: Why Do They Go Public?

Going public is not just a way to raise funds; it is a multi-level business scaling strategy. Large organizations use an initial public offering of shares as a strategic step to move out of the constraints phase.

The reasons vary:

• Increase capital without debt obligations;
• Enhance share liquidity;
• Increase market capitalization;
• Strengthen image and status on the international stage;
• Ensure transparency in reporting for trust growth;
• Prepare for acquisitions or international expansion.

It becomes clear why companies go public – to accelerate development through resources and reputation.

IPO Stages

The process of going public is akin to launching a satellite. Each phase requires precision. Large firms prepare financial reports, strengthen management, conduct audits, and develop an issuance prospectus. A successful launch depends on dozens of parameters – from credit ratings to investor interest.

Going public includes:

• Preparing documentation and corporate cleansing;
• Choosing an exchange and underwriters;
• Roadshows and negotiations with funds;
• Stock valuation and pricing;
• Placement and start of trading.

The process takes from 6 months to 2 years. An example is Sovcomflot, which went public on the Moscow Exchange in 2020 after overcoming a series of preparatory procedures.

Benefits of IPO for Business

Going public elevates a business to a different level. It allows for investment in growth rather than debt repayment. Shares become a tool for motivating employees. Credit ratings improve. Reputation becomes an asset.

The question of why companies go public at this stage takes on a clear form: to expand influence and gain independence from private investors.

Russian companies use going public as a means to increase value before selling stakes.

Foreign business structures use it to scale through the global market – as Alibaba did, raising $25 billion in 2014.

Advantages of IPO for Business

Publicity is not just about money. It is a platform for growth and internal transformation. Transparency enhances corporate governance, financial control is strengthened, and the image is bolstered to international standards.

The detailed list of benefits includes:

1. Capital. Attracting billions without debt burden. Example: Yandex received $1.3 billion during its IPO.
2. Investors. Access to institutional funds and private players.
3. Exchange. Increased share liquidity through regular trading.
4. Liquidity. The ability to easily sell shares, exit the business, or attract partners.
5. Status. Building trust with the media, clients, counterparties.
6. Image. Publicity as a marker of maturity and ambition.
7. Management. Increased accountability of managers to shareholders.
8. Reporting. Clear accounting and reporting standards.
9. Credit rating. Increased attractiveness to banks.
10. Transparency. Minimization of gray areas.
11. Multiplier. Market valuation growth due to openness.

Each advantage answers the question: why do companies go public, emphasizing the benefit of moving beyond private capital.

Risks of IPO

Public status requires not only openness but also full readiness for criticism, instability, and new standards. Errors in reporting, inconsistent management actions, stock price declines – each oversight quickly becomes public knowledge.

The costs of preparing for an IPO range from 5% to 15% of the capital raised. In 2021, Russian corporations spent an average of 300-500 million rubles on legal support, audits, underwriting, and marketing. Public shareholders demand regular reporting, and any slowdown pressures stock prices.

The answer to why companies go public here is complemented by an understanding of boundaries: for the opportunity of growth, companies must give up privacy and accept constant market attention.

Competitors and Multiples

The public market turns a business into a subject of constant comparison. Stocks are evaluated based on multiples: P/E, EV/EBITDA, and others. Each figure is not just an indicator but a way to understand efficiency compared to others. Going public exposes weaknesses and forces quick responses to industry changes.

Using Ozon and Wildberries as examples – the former went public, opening access to global capital, while the latter remained private and limited by its own resources. The answer to why companies go public in this case boils down to reassessing scales – publicity allows participation in a larger conversation.

Comparison of Russian and Foreign Companies on IPO

Corporations from different countries use public offerings differently. Russian companies more often view going public as a way to increase business value before a partial sale, while foreign companies use it for extensive expansion and integration into the international financial ecosystem.

For example, TCS Group went public on the London Stock Exchange to attract capital and increase visibility. At the same time, the American firm Airbnb raised $3.5 billion, expanding its geographical presence without debt. The reasons why companies go public here have nuances – from goals to expected effects.

Dividends, Reporting, and Finances

Public corporations are required to share not only results but also plans. Regular reporting according to IFRS becomes a standard. Discipline in expenditure increases, the ability to distribute dividends emerges, investor trust is strengthened, and finances improve.

A company that responds to the challenge of publicity enhances both managerial and investment capital. Dividends become an argument for attracting new players, and stable reporting serves as protection against crises. The transparency strategy proves why companies go public – to strengthen positions in the long term.

Why Companies Go Public: The Main Point

Going public is not the finish line but the start of a new phase. Corporations gain access to capital, investor trust, and entry into global markets. The main points are maturity, openness, and readiness for growth. The answer to why companies go public is simple: for scaling, sustainability, and transformation into a public force.