There are two ways of raising equity capital for any company - private equity funding or public offering of shares (IPO). Both have different implications, advantages & disadvantages and may be suitable for SMEs at different stages.
Let’s discuss both of these funding methods and how they affect SMEs' business;
What is Private Equity Financing for SMEs?
Private Equity (PE) funding is a way to raise the capital required from a small group of investors such as angel investors, venture capitalists (VC), or private equity firms/ institutional investors. Thus, when an SME offers its shares to a selected group of investors, it is called a private offering.
These investors inject capital into the company to pursue expansion and growth strategies, and in return for the money invested, they get a stake in the company.
SMEs in their early growth phase need more than just capital, including strategic insights and operational and managerial guidance for business growth; PE funding is the best for them.
What is a Public Offering of Shares or SME IPO?
In public issues, an SME offers its shares to the general public. Thus, it is the first time a company sells shares to the general public in the primary market and gets listed on the stock exchange. BSE SME and NSE Emerge (NSE SME) are the two platforms for listing SME shares.
Unlike private placement, in the IPO, an SME aims to raise capital from a wider pool of investors, including institutional investors, wealthy individuals, and retail investors.
Once the company is listed, it becomes a publicly traded company.
Private Placement Vs SME IPO Public Offering: 10 Key Differences
Let's point out the important difference between fundraising through private placement and via SME IPO .
SME IPO Vs Private Placement: Which Is The Best Funding Solution for You?
SMEs looking to raise funds but struggling to find the right funding solution? Both Private and public offering are the ideal ways to raise capital for different types of companies.
IPO is the best for matured SMEs seeking a large influx of capital for growth. Though there are many benefits of SME IPO, including higher brand visibility and prestige, high credibility, and public awareness, but before IPO, one must analyze the cost of going public, market scrutiny, and compliance with regulatory norms.
Private Equity funding is the best fundraising method for early-stage SMEs, who need capital access alongwith strategic guidance, networking access, and managerial assistance. Obtaining funds from targeted investors is a fast and cost-effective process and maintains confidentiality.
Are you an SME company looking to raise funds and get listed on the stock market? We can help — contact us today to start your IPO journey with trusted professionals.
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