Question

The number of companies that used an Initial Public Offering as an exit strategy dropped to very low levels after the "Dot Com Crash". However, In recent years, Initial Public Offerings have again become a popular and frequently used exit strategy for small (under 500 employees) entrepreneurial businesses.

a. True
b. False

Answer 1

The statement regarding the increase in popularity of IPOs for small businesses is true. IPOs provide crucial capital for growth and allow early investors to exit. Small companies may delay IPOs until they are more established due to initial risks and valuation concerns.

Step-by-step explanation:

The statement regarding the popularity of Initial Public Offerings (IPOs) for small entrepreneurial businesses in recent years after they fell out of favor post-Dot Com Crash is true. An IPO enables a company to raise capital from public investors which is crucial for repaying early-stage investors, such as angel investors and venture capital firms, and for the significant expansion of business operations.

The management of small firms might initially be hesitant to go public due to the risks involved and the potential low valuation of their stock, making an IPO less attractive until the company is more established and can demonstrate potential for growth and profitability.

When a company goes public, it provides an opportunity for venture capitalists to sell their part ownership to the public. This allows these early investors to exit their investment and potentially reap the rewards of their early support. Additionally, issuing stocks instead of debt avoids the requirement of regular interest payments, which can be particularly beneficial for small companies that are reinvesting earnings back into growth and may not have substantial profits.