@mohitmehra what are your thoughts on this? Do you think debt reduction is a good way to utilize IPO funds or using those funds for growth makes more sense? i reckon the argument can be made for both cases. eager to know what you feel about this
Debt can be a quick way for a business with stable revenue & assets to access funds. When opportunities arise, borrowing capital can be the default funding choice in many cases, unless as a business owner, you are averse to leveraging with debt. Going public to raise equity involves a few more considerations though:
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Is the market conducive? Will I get a fair valuation for the equity?
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Since this will be a long-standing arrangement, am I okay with parting with the equity?
Even when a business isn’t in need of immediate funds, they might choose to go public if they are happy with the answers they get to the above two questions. So, when a business has raised money, but doesn’t have an immediate need to allocate it seems fair to utilise this towards debt repayments. And later, whenever opportunities arise, engage the debt required.
A red flag could be a business that IPOs with no debt payments nor unambiguous growth plans for the IPO funds. However, to answer your question - for a business deciding between the two options, it would be most important to only focus on the rationale behind the business’s choice.
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