Eli5 Why do non IPO companies care about shareholders?


If the companies have already sold their stock, and it’s being sold on the market, why do they care? Obviously large shareholders that have board spots or the ability to threaten higher ups, they matter. But since a company makes their money from their business, selling this or that, why do they care so much about the stock price? If the company is making money, but if shareholders expect more and the stock price is low? Who cares they’re making money.

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Dissatisfied shareholders can vote out the company directors. This is especially a danger when an activist investor buys up a bunch of shares on the cheap and starts riling up the other shareholders.

If the stock price falls enough, the company is vulnerable to a hostile takeover.

A low stock price prevents the company from using a secondary offering to raise additional capital for expansion.

If employees are receiving equity, a low share price means you’re going to have a lot of pissed off employees.

As share price declines, so does the literal value of the company. A company with a small market cap generally finds it harder to borrow money, to compete for talent, to forge strategic partnerships, etc. than one with a big market cap.

CEOs have big egos. No one wants to be the guy who saw his company turn into a penny stock.


The stock price controls your valuation.

This means that if your stock price is low, you piss off those who own your stock and were hoping for better results, which can cause you to lose control of the company. Even worse if they bought the stock when it was high and you do not give out dividends, as then they just flat-out lost money.

Additionally, what loans you can get can be influenced severely by valuation.

And if your company is doing well but has low stock prices, you can be subjected to a hostile takeover.

If your stock sells at a low price, you are generally going to be seen as less successful and important. This can impact a lot of things negatively.

The shareholders own the company. That’s literally what shares are. If the people who own the company don’t like the way the company is being run, they’ll change the way it’s run, often by changing the people who run it.

Good answers so far, but missing an important factor. Most non-ipo companies are either “lifestyle” businesses, or growth companies. Lifestyle businesses are not relevant , since they are characterized by low growth, and high salaries to founders. Otoh, small, high-growth companies almost always will need additional funding from investors. In this case, investors are looking for high return on investment, which can only come from high growth in the value of the business. Existing investors / shareholders are the first place any company will look when seeking new funding.