Public Company Lingo

Familiarizing yourself with words used by founders and investors about Public Companies will help you chat more comfortably with people in the space. This doc is sourced from Embroker.

Going public refers to going from a private company to a public company by selling shares to the public. It’s up to the company when they want to go public — some may go public after being in business for less than five years, others may decide to wait longer.

1. Initial Public Offering (IPO)

An IPO is when a private company goes public by offering shares to the public, allowing them to raise capital from public investors.

Companies meet the requirements of the Securities and Exchange Commission (SEC) before holding an IPO.

2. Exit Strategy

This is a plan for business owners or VCs “to dispose of an investment in a business venture or financial asset” — in other words, “cashing out” an investment. An exit strategy allows business owners to make a profit if the company is successful or limit their losses if it’s not.

Common startup exit strategies include acquisitions, IPOs, and management buyouts.

3. Mergers & Acquisitions (M&A)

M&As occur when one company buys another company. (Mergers refer to two separate companies combining to form a joint company, but mergers of equals are rare compared to M&As.) M&As can be a strategic move for startup growth.

4. Acqui-hire

A combination of “acquisition” and “hiring,” this term describes a recruitment strategy in which one company buys another company to acquire its employees rather than its products or services.

5. Vesting

“Vesting means to give or earn a right to present or future payment, asset, or benefit” such as employer-provided stock, according to Investopedia. Founder vesting is the process of granting initial stock packages to the startup founders.

A vesting schedule defines when and how the shares will be distributed over a period of time, which allows the company to buy shares back if the founder decides to leave the company early.

6. Buyout

A buyout is a transaction where one company buys a controlling share of another company, similar to an acquisition.

7. Recapitalization

The process of restructuring a company’s debt and equity mixture to stabilize its capital structure.

It involves exchanging one type of financing for another, such as issuing debt to buy back equity.

8. Disruptive Innovation

Coined by Clayton Christensen, this term refers to where an underrated product or service gains enough popularity to take over an industry or market. A startup is “disruptive” when its initial lower-cost products gradually become increasingly popular in the wider market, like Netflix, for example.

Fly Buy has reached the final stage of business development. The company’s exit strategy involves going public by hosting an IPO. They caught the interest of a bigger drone tech company that wanted to acquire the company for $15 million. The M&A deal went through successfully, and so begins a new chapter of growth for the company.