ELI5- When a company IPOs, isn’t it at the point that VCs have already extracted all the value, and they’re cashing out? Do they have to hold?
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I think you’re thinking of Private Equity (PE) rather than Venture Capital (VC).
When a VC invests, it’s typically in a growing company that needs resources to mature. VCs give them resources in trade for ownership. As the company grows it becomes more valuable. In an IPO, the VC sells its ownership stake in the now more valuable company and “cashes out.”
When a PE firm invests, it’s typically in a mature company that is possibly distressed. The PE firm buys the company and its assets on the cheap with a plan to “cash out” the company in some fixed number of years. This definitive and short term approach often means the PE sells off assets for short term gain, restructures or adds debt to the owned company, and pursues business strategies that make the company look better within the transaction timeframe but may very well be long-term damaging.
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