Isn't the expensive-ness an opportunity cost than a real cost?
If I sell a 10% stake for $100m, my company is valued at $1bn.
If I use that $100m towards growing the business, then both the 10% stake, and the remaining 90% grow in value.
If a new investor wants a 10% stake, it's going to cost more than $100m.
This is a very oversimplified example, so there are probably parts of the process where financial cost is incurred by the company. But I'm not sure where that happens.
Yes, but what if you could borrow $100M at 3% interest collateralized by $200M worth of your equity. Then, when you IPO, you just pay back the $100M * 1.03^t.
If I sell a 10% stake for $100m, my company is valued at $1bn.
If I use that $100m towards growing the business, then both the 10% stake, and the remaining 90% grow in value.
If a new investor wants a 10% stake, it's going to cost more than $100m.
This is a very oversimplified example, so there are probably parts of the process where financial cost is incurred by the company. But I'm not sure where that happens.