Hacker News Reader

Comment by mhartl | Hacker News Reader

Going public creates a liquid market in the company's shares, which allows the owners to convert equity to cash. This ability is especially prized by investors, but founders and employees-with-options also benefit. (It's hard to buy a house with stock.)

View on HN

So please correct me if I'm wrong, but put more bluntly, you're saying that it is selling your company in order to get rich, no?

Well, you're already rich on paper. An IPO just gives you an easier path to turn that value on paper into money.

Selling a portion of your company to get well off well retaining a large stake. Also good to have employees able to cash out more easily.

No. You don't get any richer by a trade at market price. The goal is usually diversification.

I will have to respectfully disagree with pg here. Going public usually involves getting quite a bit richer by some multiple of the original value.

In a hot IPO market you generate what Adam Smith(a pseudonym) called "Supermoney" in the late 1960s.

A company which catches public's fancy can generate market values hugely over what the company would be worth in a private sale(think NFLX, think AMZN, most likely Facebook shares and so on). The liquidity and with it coming diversification is a nice plus but not the sole reason.

Of course, the company can fall from grace at some point, but even then it retains a premium over what it would be worth as a private company. This is almost by definition, otherwise the company does get taken private.

His point is that going public increases liquidity on static wealth. The act of going public doesn't make more wealth, even if it lets people convert stock notes to dollar notes.

Reply on news.ycombinator.com