Going public or staying private– this is a question that inevitably crops up in the minds of a lot of startup companies. Today E For Electric’s own Alex Guberman explored the question in regards to electric vehicle startup Rivian. What would be best for the company and the consumer? While the company itself has not made any announcements or off-hand comments on the matter, it seems inevitable that Rivian will address the possibility in the future.
Pros: Rivian Should Go Public
One of the biggest motivations behind offering an IPO is financial, since going public has the potential to bring in lots of cash. More cash means that a company can afford to do more research, more development, more marketing, and bring in better talent for all of the above. It means that the company can build more factories faster, which in turn means more product available to sell. Money makes a lot of things possible.
Employee stock options also become an incentive when a company goes public. Such options reward employees in fast-growing companies by giving them an incentive to work hard and make the company successful. They also can be a way to tempt in potential employees and persuade them to stay longer, since this type of benefit can be canceled if an employee leaves the company before they vest.
Acquisitions are another potential benefit if Rivian were to go public. With money to spare, a startup can buy out related companies to its own benefit. It can cut out the middleman and reduce the amount of outsourcing needed to bring its product to market. It can also acquire intellectual property in areas where a company did not previously have the time or resources to develop something on their own. Finally, there is the possibility of absorbing talent from these companies, bringing their expertise into the purchasing company’s fold. Tesla did all of these things when they purchased Maxwell Technology, a battery development and production company.
Cons: Rivian Should Stay Private
Of course, there are some negative options that should be remembered as well. Selling a company’s soul for spare cash will make it a slave to profit from that day forward since that is what Wall Street focuses on. In the case of a startup, a lot of profits are poured into growing by building infrastructure, factories, and investing in employees, and that affects overall profitability. This in term brings a lot of criticism down on a company’s business practices, even though it is doing well and trying to improve itself. A focus on profit also tends to negatively impact customer service, since a company’s energies must be concentrated on bringing in more customers rather than helping current owners.
There is also more of an emphasis on short-term goals as a publicly-traded company. Wall Street waits with bated breath for each new quarter’s financial report, jumping all over it and tearing it to shreds like a pack of wild dogs as they over-analyze and criticize what has and has not happened. This makes long-term goals fall to the wayside in importance, but those long-term goals are what provide startups with their passion and drive.
Going public can mean a loss of control. Larger shareowners can exert more power over a publicly-traded company, and there is no way for a company to choose its investors in such a case.
Public or Private?
According to Guberman, the smart choice would be to stay private. Rivian already has some impressive investors thanks to the likes of Amazon, Cox Automotive, and Ford, so it is not strapped for cash. He thinks that Rivian should not go public so that it can stay true to its vision to provide sustainable transportation to an adventurous world without the risk of selling out.