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Thanks for your response, and I hope I didn't seem patronizing, I didn't mean to be.  i really didn't know how they system worked, in the sense that I was responding so long after your question.

There are so many reasons for going public, that it's a little difficult to address your question.  My own experience is in this California high tech/health care start up environment.  I would say in 80% of the cases, the reason for going public is that the original investors, who have made an investment that is very risky from their personal perspective, want to "cash out".  Remember that all their investments are not winners, they lose their full investments on the losers, so it's only fair, IMO, that they get a chance to cash out on the winners.

And for this size company, which would normally have sales revenues of $30 million or so (obviously company's like Google are an unbelievable exception to the average startup), even if their investors didn't need to cash out, borrowing from a bank is incredibly expensive as opposed to going public, and having shareholders share the risk of future expansion.  So getting money to fund expansion from equity investors, as opposed to banks, just makes logical sense.

In my experience, maximizing shareholder value is not consistent with driving a company into the ground.  Building shareholder value means building a real company, that meets customer needs, and introduces incredible products, better than the existing products,,,, and then replacing those with better products.  I know the companies that hit the headlines are driven by ,,,,pejorative term,,, people that I would like to see jailed, but it's just not the normal person in business.

You are correct that a company's stock price is influenced not only by their results, but by the overall market valuation, influenced by interst rates, and other factors.  But in terms of leading a company, you are a fool if you get taken away by that.

I'm very discouraged that so many people's opinion is driven by the Enron's, etc.  in general, people that run business, IMO, are just as good in a values sence, as anyone else--in my experience, which has been in healthcare, it's been higher.  My own experience is filled with people, at all levels in a company, that work their tails off, to come out with wonderful products, consistently at the highest quality, that meet the needs of physicians who treat patients with these products.  it's always very depressing to read the press, who highlight the errors that are made, the people that have bad motives, etc.  it seems to me like picking an ethnic group, and based on the highly publicized activites of a few, discriminating against that group.  It's just not fair.

And responding to your close, my experience is more real world than business school--take that for what it's worth.

by wchurchill on Sun Oct 23rd, 2005 at 05:52:22 AM EST
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If going public with dividend-paying stock is what it takes to discourage the predatory stockholders, I have nothing against it.

You are sort-of confirming my suspicion that, once again, what one gleans from the press (even the business press) about what business management is like is not sensible.

I did not find you patronizing, nor did I intend the comment about brainwashing to refer to your position. It refers to the opinions of those in a position to influence the public discourse.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Oct 23rd, 2005 at 06:17:44 AM EST
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Sorry, I'm not following you entirely.  and maybe I wasn't clear with my comments, or perhaps I misunderstand your comments.

When a start-up company goes public, it gives the original shareolders a chance to sell their shaes to the public market.  the original shareholders don't have to wait for dividends, they can just cash out.  With young companies going public, it would be incredibly rare (I can't think of an example) for the company to pay a dividend.  Normally they need the money to reinvest into the company to grow, and in fact may need more than they can generate themselves, and thus need to put a secondary offering out to the public to get more money.

anyway, my apologies if we are miscommunicating on these issues.

by wchurchill on Sun Oct 23rd, 2005 at 06:30:18 AM EST
[ Parent ]
Not really miscommunicating, but I really know very little about business finance and this is not the best medium to hash such things out.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Oct 23rd, 2005 at 06:50:51 AM EST
[ Parent ]
I would say in 80% of the cases, the reason for going public is that the original investors, who have made an investment that is very risky from their personal perspective, want to "cash out".

By "original investors", do you mean venture capitalists?

"maximizing shareholder value" seems to be a bogus propaganda argument for "maximizing the value of my own stock options".


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Oct 23rd, 2005 at 06:31:04 AM EST
[ Parent ]
original investors would include a broad group of people: venture capitalists would be one.  Private investors another.  the time and money of the entrepreneur would be another.  in most cases I'm involved with, the entrepreneur has his family and friends involved.  then if the company looks good, and meets milestones, other investors will get in the following investment rounds, and might include other financial investors, like banks and funds focused on "mezanine" type financing.  the previousl list is not exclusive, there might be others--pension funds, for example.
by wchurchill on Sun Oct 23rd, 2005 at 06:37:46 AM EST
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