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Chapter 12. Harvest > The Initial Public Offering

The Initial Public Offering

An Ideal Harvest Strategy for the Franchisor

An IPO harvest strategy is the perfect transaction to leverage franchisor growth. The IPO provides cash to the franchisor firm and liquidity to the non-management investors. These investors, certainly venture capitalists, will almost always have a bias toward an IPO. If a company qualifies for an IPO, it typically yields the highest percentage return to shareholders. Qualification for an IPO centers on the scale of the firm, the quality of the management team, and the prospects for sustainable and profitable growth. Taking a company public invariably means the entrepreneur will not exit the deal as either an investor or manager, but may realize some of his investment through the sale of a percentage of his equity.

Few new investors in an IPO like to see the founders realizing all their shares. Such actions signal a lack of confidence in the future of the company. Because an IPO raises money for growth and the new investors provide the lead entrepreneur and management with growth capital, they would not be as likely to provide those funds to a company whose leader was leaving. An IPO is, to a great extent, the public’s belief in the vision and capabilities of the executive team. Further, executive “lock-up” (the amount of time an executive cannot sell stock after the IPO) can be as little as 6 months or up to 2 years or even longer.


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