Eli5: How does a private owned company benefit itself financially by going public?
In: Economics
If you get a loan, you have to pay it back with interest. Sometimes what a company wants to do is so risky a bank doesn’t really want to take the risk.
Going public means the shareholders *pay you money* and it’s not a loan. But you are selling *ownership* of your company to a degree. They hope to make their money back because they think your plan is going to pay off and they’re going to get dividends or a higher share price or some other benefit from having paid in. And if it doesn’t pay off, they can often have the power to replace leadership with people who might do a better job to try and recoup their investment.
So whether it “benefits” a company is subjective. It often means the company gets to expand in ways that wouldn’t be possible with normal means of funding. But it can also mean the company ends up having to make decisions based on shareholder whims that aren’t compatible with its original goals.
Think of it kind of like if you got 10 people to buy you a cool media room with a giant projector and a really good gaming computer and a setup so you could be a streamer. But in return, they get to pick the games you play and when you play them, and if you don’t do what they say they take the room away and give it to someone else.
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