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?
| +446 | Change My Mind: Banks Shouldn’t Hire Foreigners at All | 117 | 2h |
| +267 | Article - UBS’ Investment Bank Keeps Losing Ground | 36 | 12m |
| +210 | Don’t work at UBS - UBS Sucks | 19 | 20s |
| +81 | An Exhaustive Guide: How to Solve Every Single Accretion/Dilution Question | 7 | 1h |
| +59 | When to Leave Office as Intern | 8 | 2d |
| +44 | Best IB Group Overall? | 27 | 2h |
| +38 | Would you rather be a Touse Squid or a Bouse Mogger in IB | 2 | 2d |
| +31 | STEM student lost in London IB recruiting | 17 | 1d |
| +30 | What do you say to ppl who don’t know EVR/LAZ/CVP/PJT | 23 | 18m |
| +23 | Should My Intern Get a Return Offer? | 9 | 2h |
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.
Id quo laboriosam non a beatae aperiam ipsam. Quia pariatur ex quidem beatae. Laboriosam earum recusandae voluptatem.
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...