Going public offers several advantages to a firm and its current, private shareholders. First, selling stock publicly allows the firm to tap another source of capital: the public equity markets. Managers may decide to make the firm public because they need more capital than a private placement can provide. Or it may be cheaper to raise public equity than to undergo another round of financing from venture capitalists. Studies show that a firm should be profitable and raise at least $10 million for an IPO to be cost-efficient. In addition, once a firm goes public, it can raise money periodically from the public markets by selling additional shares of stock. Second, a certain prestige and publicity surrounds a firm that goes public and lists its shares on a stock exchange for trading. Third, shareholders may enjoy attractive capital gains if management achieves sales and profit goals. Founding entrepreneurs often purchase shares for pennies when the firm begins operating, but after the IPO, their shares are worth much more. A good time to go public is when investors favor stocks in the firm’s industry or when the stock market is in a strong rising trend. The IPO market may be momentarily hot in a certain industry. A public company enjoys a fourth advantage through its shares’ liquidity. Since investors can buy or sell shares easily form each other, investors or managers easily can sell all or part of their investments if they choose. Managers may receive pressure to go public form the firm’s private equity holders – especially venture capitalists – who may have a strong desire to liquidate their holdings. Secondary market liquidity eases owners’ worries about receiving fair market value for their shares, since an impersonal marketplace, rather than accountants and attorneys, determine the per-share value of the company. Public trading may take the shares even more valuable, by reducing their liquidity risk. Yet, some firms find going public an undesirable option. First, offering stock to the public is an expensive process. The costs of preparing financial statements, hiring attorneys, and marketing the shares to investors can consume a significant portion of the funds raised. Another drawback is loss of control over the firm. Unless the firm offers less than 50 percent of its equity to the public, investors who are unknown to current managers and owners will collectively own most of the firm’s common stock. Those shareholders will elect a board of directors to ensure that decisions are made in the shareholders’ best interests. In addition, shareholders will make other major decisions themselves by voting, as outlined in the corporate charter or as allowed by the board. Additionally, since the former private shareholders will lose control over who buys the publicly traded shares, they may find the firm the target of a hostile takeover sometime in the future. Of course, control can be diluted by selling shares privately as well. A third potential disadvantage is that a public firm must lay out its finances for all to see. While this reporting requirement allows current and potential investors to examine the firm’s strengths and weaknesses and gain insight into management’s future plans, it also allows the firm’s competitors, both foreign and domestic, to do the same thing. Rivals can factor in the firm’s profit margins and product sales as they ploy their marketing and R&D strategies. Public firms also must submit to regulation by the Securities and Exchange Commission (SEC) and the exchange on which their shares are traded. Finally, having shares listed and traded on an exchange does not always guarantee a dramatic increase in liquidity and share price. If the firm is still relatively small and the market sees no spectacular potential for future growth in sales and profits, investors may ignore the firm after the public offering. This could leave shareholders with shares of a public firm that nobody else really wants to own. The shares can become illiquid quickly if they are not traded frequently, and weak interest can leave them languishing at a low price. The firm may have been better off staying private.