There is more to Initial Public Offerings (IPO) than big flashy headlines touting a company’s multi-billion dollar market valuation.
That’s literally just the tip of the iceberg. At a deeper and more important level, IPOs provide entrepreneurs an efficient path to capital to grow their businesses.
Take GoPro, the California camera-maker launched by Nicholas Woodman, on a shoestring budget back in 2003.
If you went to Google.com in 1997, here's what you'd see:
By the time Woodman and his team filed for an IPO in 2014, the company was selling millions of cameras and generating record profits. But GoPro was at a crossroad.
Despite their financial success, Woodman and his team faced a critical inflection point: They could continue as a successful hardware company, churning out annual upgrades to the iconic GoPro cameras (a viable business). But sticking with that path meant ignoring an important reality.
Google - First day of trading as public company
The videos uploaded by GoPro users were also attracting a growing audience. Indeed, the more cameras GoPro sold, the more content ended up online, which attracted an ever-growing number of eyeballs. According to Google, by 2013 nearly three years of GoPro video content was uploaded on YouTube.
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To this day GoPro’s YouTube channel has more than 3.55 million subscribers.
The data was compelling and it prompted GoPro to rethink its underlying value proposition as a company. For, as well as a camera maker, GoPro was also emerging as a full-fledged media company that could generate new revenues by selling ad time to companies eager to connect with its growing and passionate audience.
To do that, GoPro had to start a whole new business and that required capital.
The company had a number of options to secure that investment capital. It could get a bank loan or convince its venture capital backers to pitch in another round of funding.
Both were feasible options, but the most attractive one for GoPro was equity financing. After all, the company was generating the sort of profits and enjoying the kind of brand recognition that would attract institutional and individual investors to invest.
Going public was an efficient way to raise enough money to build a media business and reward their initial venture investors.
The company’s June 2014 IPO raised $427 million, valuing the company at nearly $3 billion. Thanks to the IPO, GoPro is building its media business.
It’s hired seasoned executives and inked partnerships to distribute its content. The company is even developing a camera that will let major television networks stream live footage, ensuring an even wider audience for GoPro and its unique video footage.
Take a look at our infographic, which demystifies the IPO process by explaining how public offerings let entrepreneurs such as GoPro’s Nicholas Woodman grow their business and reward investors.