In two years Mr. A grew A-Foods Limited from a start-up to a$38 million business. At the same time, the stock market had becomemore interested in investing in small companies. Therefore, Mr. Aexpected that "going public" would be a good way to raise large sumof money for his new business plans.
Mr. A and his managers worked with every possible financingsource, from friends and family, to banks and investors. Now theywould base their plan on being able to raise millions from both theprivate and public markets.
Mr. A intended to sell stock in the company in a $30 millionIPO (initial public offering). Sales that year were well on theirway to $58 million, and the business needed the capital to supportthat volume level. What they did not expect was how much timecompany managers would need to spend on the fund-raising effort.SME Management (MGT601) CASE STUDY
Then, Mr. A, s financial advisors told him the market no longerhad any interest in new "small-cap" IPOs. So the company had to goback private sources for money. Nine months after the IPO that wasnot A-Foods Limited board, out of cash and out of possibilities forraising cash, filed for bankruptcy.
THINKCRITICALLY
1) Howcould Mr. A have better used his management team andresources?
2) What do you think was responsible for A-Foods Limiteddownfall?