One of the major reasons that companies used to go public is that the public markets provided much easier access to large amounts of capital. The significant capital available from public markets was important to take a great idea and scale it to a level where economies of scale could be achieved. Once economies of scale were achieved, it is much easier to obtain the level of operational and financial leverage to drive a robust profitability trend.
Now days, many IPO's have huge sources of private funding. So the traditional primary reason for going public isn't the issue anymore. Many of these companies have already scaled up with boatloads of private funding.
When a company scales up, it should be able to achieve the economies of scale. In other words, it should be profitable, close to profitable or moving in the direction of profitability. It is interesting to note that many current IPO's have trends of losing greater and greater amounts the closer they get to going public. Some recent IPO’s have track records of losing billions of dollars at an increasing rate.
If someone had a very profitable private business, why would they be willing to sell it to someone else? Sure, there may be generational issues where one generation wants to monetize their life's work. There are other reasons as well. Many of the current firm's looking to IPO are startup firms which have huge loses even as they scaled up to an enormous level.
We always hear about the valuations of IPO's. Who creates those? The investment banks who have vested interests in the highest valuation? It's probably some spreadsheet jockey creating a complicated spreadsheet with lots of variables and assumptions that isn't visible to the public. This is probably why recently valuations of IPO's have dropped a large percentage before their IPO date and many have delayed the IPO.
All this has led me to believe that private money is no smarter than public money. Private investors have dumped unbelievable sums into these firms and come to the realization that the idea that drove the company wasn't as earth shattering as they thought. What do they do? They apply one of the oldest theories of investment - the greater fool theory and get rid of it in an IPO (if they can)!
