The purpose of this paper is to provoke discussion on the choice of initial public offering (IPO) timing and issues that entrepreneurs need to think about when making such decision.
This case explores issues surrounding IPOs and in particular, the potential conflict of interest between company founder and external investors. H‐Solution, founded in 2002, was an entrepreneurial company in China's medical device industry. It started as an importer and distributor of advanced medical equipment and subsequently transformed its business model to providing integrated outsourcing solutions for hospitals. While Beta Venture, H‐Solution's venture capital (VC) investor, was eager to take the company public early, Xia Chen, H‐Solution's founder, was concerned that the increased disclosure requirement would force H‐Solution to disclose the details of its new business model to rivals, endangering H‐Solution's future market position and growth.
The paper finds that it is important to focus on a company's fundamentals and long‐term value creation. Senior managers should avoid decisions that may sacrifice the long‐term well‐being of the company for short‐term gains.
This case provides insight into the founder‐VC relationship and potential conflicts of interest between them. Students are encouraged to think about issues surrounding H‐Solution's IPO and decide whether or not the company should pursue a public offering given the circumstances. This case can be used in entrepreneurship and/or venture capital and private equity courses.
