Growth is the time-tested mantra to sustain in this highly competitive era, be it business or life. When any promoter thinks of growth, non – availability of funds will show up as a hindrance. There comes Private Equity and IPO (including SME IPO) into picture, both these are popular ways to raise money, however both are not similar in many terms, which we will be exploring in this blog.
SME IPO is a customised listing process, that caters small and medium-sized enterprises to raise capital through offering shares to the public. SME listed companies’ shares are traded on SME Exchange, thus protecting these companies from competition thrown by large companies listed on the main board.
By listing the company on the SME Exchange, SMEs can raise funds to cater its various needs. This process not only enhances a company’s visibility but also contributes to the company’s credibility, business opportunities, clientele, and many more!!
Key Differences between SME IPOs and Private Equity
Parameters | SME IPO | Private Equity |
Meaning | Funds are raised by listing the company on the SME Stock Exchange | Under Private equity, funds are raised through private equity investors, without going to public. |
Investors | The IPO Investors ranges from HNIs, Mutual Funds, Family Houses and Portfolio Investment Houses; and Retail Investors | Investors here are mostly a closely held investors group. |
Valuations | The Valuations are a multiple of Profit after taxes and the Price to earnings ratio applicable to the sector. There is no post Investment valuation. As Private Companies does not have comparable, The Valuation is generally based on the Customer Base and future potential of the company | A PE Values the future potential of the business and arrives at the Valuation basis various factors like Revenue, EBIDTA and generally the PE Valuations will be aggressive; as they look for an aggressive growth and returns |
Stake Dilution | Dilution should happen as per the applicable guidelines | Dilution depends on the arrangement between the company and investors, in some cases investors may get hold of the company over a period of time. |
Board of Management | Board Control remains with the Promoters | Private Equity Investors always participate in the Management at strategic level; and also, at key decision-making level. |
Benefits | Listing results in | The Company remains Privately held. |
Exit strategy | Under the IPO, the Shares are easily tradable in the Exchange and no further Exit Strategy is necessary | Private Equity Firms generally look for an identified Exit Strategy either by listing in the Stock Exchange; OR by Stake Sale to another Investor. |
Return Expectations | Under the IPO, the Share Prices are Market Driven and is generally guided by market forces and performance of the company. The Multiples are higher when the company’s performance is good | Private Equity Investor’s expect a higher return and may pressurise the promoters. |
Above comparison reiterates the benefits of SME IPO. Another biggest advantage of SME IPO is, the company will get used to the market conditions and environment before entering the mainboard. This is a highly Viable option for companies aiming for sustainable growth without compromising control.
We, ARKVR Capital, South India’s leading capital advisory company, are here to serve you throughout your SME listing process. We have helped several companies till date and many are in the process, desirous of becoming one among them, then join us!!
Call us now at 9841078545 for a FREE Consultation or email to info@arkvr.in to know more.