CEO of Fluidigm had evidenced the effects of the financial meltdown on the startup businesses in U.S. but had just made its chipmaker public. All the investors were fearful and Worthington understood that he could not proceed any further. The company is low in cash at the moment and yet has high hopes of capitalizing on the opportunities in the future. The available cash was $32 million where each quarter around $7 million was being utilized. Even though he realized that the company would run out of cash by end 2009, Worthington wouldn’t cut back and focused on growth (Ante, 2008). Companies backed by venture investors have been failed to go public where only one succeeded in last two quarters. Due to this, the VC-backed companies had started cutting its expenses and laying off the staff. Everyone had become sure that most of the companies would not be able to survive by next six months. But Worthington does not consider slowing at this moment.
Even with a loss of $15.3 million, the company managed to double its revenue to $5.5 million. To get cash for cushion, Worthington hoped to raised $80 million in the IPO; though he priced the share around 14 to 16 but the fearful investors offered in single figures. Even though he had less cash, he was determined to remain competitive and he even hired marketing staff to grab more customers (Ante, 2008). Remembering all this, he is confident that now if he does not manage to go public, he still believes in the company; it had already been through such situation and so this is not the first time. The company has more credibility and so either the Wall Street money managers would help in raising cash or the executives within the company.
IPO or initial public offering is when for the first time a private company sales its stock to the general public. Usually it is the startup businesses or younger companies that issue IPOs as they seek capital for expansion. The company raises capital by the issuance of its stocks in the public market. The companies also do this to expand its equity base, earn good image in the public and for its prestige (Fuhrmann, 2013). The capital earned by selling the shares is not repaid to the investors; rather, money is passed to them when the shares trade in the open market.
IPO process involves first of all getting the approval of the SEC; this includes describing why the company is doing and what. Once approved, the company must get approval from its shareholders; if the private investors are secured then the process continues. Next step is to make presentations to large investors. The money flows from these big investors to the bank account of the company and the investors then sell those shares at the public exchange. Company is free to choose any offering price (Bruton & Filatotchev et al., 2010). If a lower price is chosen, stock price jumps up when trading begins. But in the case of Fluidigm, a high stock price was chosen which did not get enough backing and so the price of stock fell drastically. This also hurts the reputation of the company.
APPLICATION
Investing in an IPO is a highly significant issue for the investors; the timing of an IPO is being controlled by the company. If the price is higher, it indicates that the potential for investment is not bright in the future. When a the price of stock falls after an IPO, it indicates that the underwriter wasn’t successful in indicating the price or it could also mean that it is not a solid company and must not be invested in. going public is not only time consuming but also pricey (Pennacchio & Del Monte et al., 2010). When an IPO is made, a company goes public and it helps the economy to grow; the reason is that success in IPO helps the companies to grow but if they have similar situations like Fluidigm, they would limit the growth of the economy (Bruton & Filatotchev et al., 2010). When the local investors do not trust the companies, the economy would slow down and the trust of the foreign investors would also be lost in the economy. When the stock market is not stable, it would indicate that the economy is not doing well and so the confidence of the investors shall be lost as they refrain from purchasing stocks (Pennacchio & Del Monte et al., 2010).
There are also other methods to sell share that are less costly as compared to the IPOs. The most important issue with IPOs is that the company bears the ongoing costs of complying with the requirements of the public financial reporting. As compared to going public, the listing costs are lower when Wall Street firms are involved or endowments on secondary exchange are made. There are private marketplaces like SecondMarket and SharesPost where the institutional investors purchase the shares that have been previously issued by early shareholders. So, without incurring the IPO costs, the shares of a private company turn into cash (Cohan, 2012).
References
Ante, S. E. (2008). Sweating through an ipo drought. Business Week, 27th Oct, p. 58.
Bruton, G. D., Filatotchev, I., Chahine, S. & Wright, M. (2010). Governance, ownership structure, and performance of ipo firms: the impact of different types of private equity investors and institutional environments. Strategic Management Journal, 31 (5), pp. 491--509.
Cohan, P. S. (2012). How to sell shares without going public. [online] [Accessed: 28 Jan 2014].
Fuhrmann, R. C. (2013). The road to creating an ipo. [online] 29th Aug. Retrieved from: http://www.forbes.com/sites/investopedia/2013/08/29/the-road-to-creating-an-ipo/ [Accessed: 28 Jan 2014].
Pennacchio, L., Del Monte, A. & Acconcia, A. (2010). Underpricing and distance: an empirical analysis.
