Going public has historically been considered the goal for many young companies, but the complexity and expense of the process along with the possibility of losing control and company culture has led startups to reconsider their options. For some startups, staying private can allow them to maintain control, focus on long-term goals, and avoid regulatory scrutiny. This blog will discuss why some startups opt out of going public and some strategies they have for being able to stay private.

Why Some Startups Choose to Stay Private

People may be interested in starting businesses but may not necessarily want to take them public. There are many reasons companies might not want to take their company public, some of which include the increased regulations required of publicly traded companies, the desire to maintain control, and poor market conditions. Even though an IPO can be an effective way for companies to access large sums of capital, it can be an expensive endeavor that may not achieve the goal the startup wants to meet, causing some businesses to stay private.

Maintaining Control

One of the primary reasons startups may remain private is the desire to maintain control. When a company is public, shareholders typically have a say in major decisions and the board of directors may have to listen to new public investors. Staying private means that the startup can retain a greater amount of control over the direction, culture, and strategy of the company. Autonomy can allow founders to make longer-term decisions without the pressure of appeasing the shorter-term market demands.

Public companies are often beholden to the expectations of analysts and investors, who may have unrealistic growth expectations or demand that the company pursue certain strategies. By contrast, private companies may have more leeway to pursue the strategies that they believe are best for their business.

Executing Long-term Vision

Along the lines of maintaining control, startups that opt out of going public can execute their long-term visions without having the pressure of delivering short-term results typically experienced by public companies. By staying private, startups may be able to focus on sustainable growth, innovation, and strategic investments without being in the public eye. This flexibility could allow for better decision-making, especially in industries that may require extra research and development or closer attention for future growth.

Avoiding Some Regulatory Requirements

Public companies may be subject to rigorous regulatory requirements, including regular filings with the SEC and the requirement to disclose financial and operational information to the public. These regulations may be time consuming as well as distracting and sometimes even costly. By remaining private, startups can avoid some regulations and reporting requirements that are specific for publicly traded companies.

Having Enough Capital

Going public can be a complex and expensive process. It may require significant amounts of time and money, from legal fees to compliance costs to underwriting fees. Additionally, once a company goes public, it is subject to a host of new regulations and reporting requirements. This can be daunting for young companies with limited resources. By staying private, startups can avoid these costs and allocate resources towards other areas of the business.

Additionally, a startup may already have received enough capital from venture capitalists and angel investors where they may feel going public is not necessary. If a startup already has enough capital to sustain operations and achieve its growth goals, there may not be the need to pursue an IPO.

Market Conditions

A startup may choose to remain private due to unfavorable market conditions, as going public can expose it to increased volatility, regulatory scrutiny, and pressure from short-term investors. In times of economic uncertainty or market downturns, stock prices can fluctuate, making it difficult for a startup to achieve a favorable valuation.

By staying private, a startup can maintain greater control over its operations, long-term strategy, and decision-making without the distraction of meeting quarterly earnings expectations or facing the potential fluctuations of public market prices. This flexibility may allow the startup to manage market instability without the added pressures of public scrutiny.

MicroVentures Portfolio Companies

Here are some MicroVentures portfolio companies that have opted to stay private for the time being for different reasons.

Plaid

Plaid is a fintech company that helps consumers connect their financial accounts to other websites. The company was almost purchased in 2020, valued at more than $13 billion in 2021, and rumored to be on the docket for a 2022 IPO, but many things have changed in the market. With the past couple of years of a cooled IPO market, CEO and co-founder Zachary Perret stated in a 2024 interview that Plaid doesn’t have any specific IPO timeline in mind.[1]

Stripe

Stripe is a payments infrastructure company and secure payment processing platform engineered to enable businesses to confidently accept a range of online and in-person payments. It supports diverse popular payment methods such as credit, debit, online, and mobile options. Stripe has been a highly anticipated IPO since 2022, but the tender offer completed in February 2024 will likely delay IPO plans due to the company having enough funds to continue operating privately.[2]

Turo

Turo is a car sharing rental platform that enables car owners to rent their vehicles to other users on a short-term basis. Unlike the other two companies, Turo has filed for an IPO, but due to market conditions, has chosen to delay going public. Turo first filed for an IPO in 2020 and has continued to update its filing. However, with the unfavorable IPO marketing, the company has decided to wait until the market improves. Recently, they still have not announced when they will go public.

Strategies for Staying Private

While opting out of going public can have advantages, it also may present challenges in accessing capital, managing growth, and creating liquidity for shareholders. Here are some ways to address these challenges.

Accessing Capital

For many private startups, accessing capital comes through either private equity or venture capital funding. The availability of venture capital means that startups could secure funding without the need to float their companies in the stock market. This may provide the money necessary for the organization’s expansion and subsequent development while staying out of the public sector.

Managing Growth

Going public requires the company to surrender considerable control of its operations, policies, and major decisions. Public companies have to answer to shareholders, regulatory authorities, and other stakeholders and may be burdened by the quarterly reporting season. It has become possible for companies today to grow while still retaining that non-public status. This trend can enable startups to achieve a well-developed business model before entering the public market.

Creating Liquidity

One of the challenges for privately held companies is providing liquidity for shareholders, especially when those shareholders want to exit. Unlike public companies, where shares can be traded on the stock exchange, private companies may have to find alternative ways to offer liquidity. Mergers and acquisitions (M&A) offer another potential avenue for liquidity. By merging with or being acquired by a larger company, a private company can provide a liquidity event for shareholders while maintaining the benefits of staying private.

Final Thoughts

Staying private doesn’t mean sacrificing growth or liquidity. A startup’s reason to opt out of going public can stem from the desire to maintain control, poor market conditions that may not lead to a desirable public listing, or even the increased requirements from regulators. In addition, there could be benefits of staying private with the ability to manage growth and private capital may also play into a startup’s overall decision.

Want to learn more about investing in private companies? Check out the following MicroVentures blogs to learn more:

• The Future of Private Equity Investing
• The Rise of Private Market Investing
• Investing in Secondaries: A Guide for Private Market Investors
• Defining a New Idea: Active and Passive Investing in the Private Market

Are you looking to invest in startups? Sign up for a MicroVentures account to start investing!

[1] https://www.forbes.com/advisor/investing/plaid-ipo/

[2] https://thepaypers.com/online-payments/stripe-secures-usd-694-million-in-tender-offer–1267696

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.