Why Some Startups Choose an IPO Over Private Funding

Recently, Cambodia Airways made headlines by updating its prospectus, revealing plans to raise $45 million through an IPO on NASDAQ. The airline intends to offer 10 million shares at a price range of $4 to $5 per share, aiming to bolster its position as Cambodia’s only full-service carrier. With a fleet of five Airbus aircraft and a strong recovery in passenger numbers in 2024, Cambodia Airways is positioning itself to become the first Cambodian company to be listed on NASDAQ. This move raises an important question: why do some startups choose to pursue an initial public offering (IPO) instead of seeking additional funding from private investors?

1. Access to a Larger Pool of Capital

One of the main reasons startups choose to do an IPO is to raise a large amount of money. Unlike private funding, which usually comes from a small group of investors like venture capitalists or private equity firms, an IPO lets a company reach a much wider group of potential investors. For example, Cambodia Airways plans to raise $45 million by listing on NASDAQ. This large amount of money will help the airline grow, upgrade its fleet, and take advantage of new opportunities, especially in the rapidly growing aviation market in Southeast Asia.

For startups, an IPO can be a useful way to raise money for big growth projects that might be hard to fund through regular private investors. This is especially true in industries like aviation, where companies need to invest a lot of money in things like equipment, technology, and marketing to stay competitive worldwide. For example, Cambodia Airways is working on growing its fleet and adding new international routes, which will require a lot of money upfront.

2. Increased Market Visibility and Credibility

An IPO can give a company a lot of attention, not just from potential investors, but also from customers, suppliers, and business partners. Going public shows that the company is strong, trusted, and able to meet important rules and regulations. For Cambodia Airways, being listed on NASDAQ—one of the most respected stock exchanges in the world—would help the airline get noticed globally, especially in the aviation and travel industries. This higher visibility could lead to new business opportunities, partnerships, and more customers.

An IPO can also help startups attract talented employees by offering stock options. In competitive industries, the chance to own a part of the company can be a great way to recruit and keep top workers.

3. Liquidity and Exit Opportunities

Private funding can be helpful, but it often comes with a problem: investors have to wait until the company is making a profit or goes public to get their money back. An IPO, on the other hand, offers a quick way for investors to sell some or all of their shares and make a return. This is especially attractive for investors who want to "exit" or cash out.

For Cambodia Airways, listing on NASDAQ gives early investors a chance to make money while also providing the airline with the funds it needs to grow. An IPO can also bring in new investors, which helps the company raise more money and get long-term support for its future growth.

4. Long-Term Growth and Expansion

Private funding is often just the first step for a startup, but once the company grows to a certain size, going public becomes an important next move for its long-term plan. The money raised from an IPO can be used to start new projects, buy other companies, or invest in research and development. Cambodia Airways, for example, plans to use the money from its IPO to become more competitive in the fast-growing aviation market. The airline will use the funds to add new routes, upgrade its fleet, and take advantage of the increasing demand for tourism in Southeast Asia, setting itself up for long-term growth.

Being publicly traded also gives the company the chance to raise more money later on through additional stock offerings. This is helpful as the company continues to grow. Public companies often find it easier to get loans or credit, which can also help them expand in the future.

5. Risks and Considerations

An IPO can bring great benefits, but it also comes with risks and challenges. For example, Cambodia Airways’ IPO has raised concerns from experts like Donovan Jones, who pointed out issues with the airline’s past financial performance. Many investors, however, believe that the airline's potential for long-term growth—especially with Cambodia's improving economy and growing middle class—could outweigh these short-term risks. Still, for the IPO to succeed, the company needs to carefully manage its operations, public image, and relationships with investors.

Choosing to list on a major exchange like NASDAQ, instead of going with a local exchange or private funding, reflects Cambodia Airways' broader strategy. While the airline could have listed on the Cambodia Securities Exchange (CSX), NASDAQ’s global reach and strong reputation could attract more international investors and open up more business opportunities.

Conclusion

Startups like Cambodia Airways choose to go for an IPO instead of relying on private funding for several reasons. These include access to a larger amount of capital, better visibility, liquidity for early investors, and the chance to grow in the long run. While an IPO does come with risks and challenges, the potential rewards for both the company and its investors can be significant. As Cambodia Airways moves forward with its IPO, it faces both the risks and the opportunities that come with being publicly listed, especially in a growing and competitive market. For investors willing to take on some risk, an IPO can be an exciting opportunity, with the potential for big returns if the company makes the most of its chances.