I was reading some IPO stuff for newbies, and it said "Public money is usually the cheapest and much less expensive than venture capital, private equity or borrowing money."
I don't undersatnd why the public money is cheaper than all of those mentioned in that line. Can someone explain a bit?
| +278 | Return Rates For Interns Are Falling? | 113 | 1m |
| +123 | Article: Why UBS's Asian M&A bankers are thriving and UBS's American M&A bankers are not | 13 | 1h |
| +114 | I am a drunk MD AMA | 39 | 1d |
| +73 | UBS Offer Day | 27 | 3h |
| +64 | VP Lifestyle at Top BB Coverage Groups | 40 | 2d |
| +57 | An Outsider’s View of RX Banking Out of College | 6 | 5d |
| +46 | No return so what are the options left | 31 | 4h |
| +45 | Evercore > Goldman and I don’t think it’s particularly close anymore | 21 | 6m |
| +41 | WF Return offers | 28 | 2h |
| +41 | I hate Wells Fargo | 7 | 51m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
This is a difficult question to answer without knowing your level of financial education, but here's a simple answer:
The required return from investors in public equities is lower than the required return for VC or PE investors.
If a public stock returns 12% over a period and outperforms its index, its owners (mutual funds/other institutional investors and retail investors) are probably satisfied with the company.
VC and PE firms have a return hurdle (often 8-12%) that they need to exceed in order to share in the profits from their investments. Realistically they target much higher returns because that means they make more money for their investors and themselves. We'll say they need to expect a 20% return in order to invest.
Because they have different return targets, the price they are willing to pay will be lower (assuming the private investors don't expect to be able to make significant changes in performance by owning the company privately.)
We can get into "why" different investors have different return targets and "how" PE and VC gets higher returns than public equities but those are more complex issues.
Nice rundown! +1SB.
Aut eveniet eos itaque voluptatum. Et recusandae sed corporis est repudiandae suscipit. Provident velit facilis necessitatibus et blanditiis nulla fugiat.
Eum eos qui id aut quasi animi. Quod ea nam labore veritatis. Non magni fugit odio et sed reiciendis. Tempora neque ducimus nihil adipisci placeat nam consequatur. Eligendi minus culpa dolor cumque.
Quasi voluptas doloribus explicabo quo harum est atque. Dicta sit reiciendis inventore accusantium neque aut et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...