Going Public – Initial Public Offering or IPO
is going public?
the Securities Act of 1933, to sell stock to the public, your
company must register with the Securities
and Exchange Commission. You file a registration statement
with the SEC and when it is released, you may sell stock to the
public. This stock can trade in the public market and the company
then files under the Securities and Exchange Act of 1934.
Not only do you get new money, but you can more easily raise
money in the future -- public companies have an easier time
raising money because the investor has a built-in exit strategy.
Private companies have no built-in exit strategy and the
investor's money is locked in and the investor is therefore
reluctant to invest.
you can get a better price for the company -- Some
private companies who want to sell out go public first to get a
help value the company for estate tax purposes - To
provide a market for cashing out
attract top employees because you can give incentive stock
options -- Incentive stock options are an inexpensive
way to motivate top employees
be able to make acquisitions for stock -- Like
being able to print your own money
-- Public companies have a better reputation, are more
freedom -- Being public maximizes company options and
Wealth -- nothing beats control of a public company for
increasing your net worth
Insider Trading -- you can also buy back your stock when it is
underpriced and sell it when it is overprices in the market,
subject to the insider trading rules.
Advantages of a
Conventional Public Offering
Reverse mergers have
developed a bad name recently because of frauds in certain Chinese
You avoid the risk
of buying a public shell with a hidden problem.
You avoid the
problem of having the shell merchant dump stock on you in the
aftermarket or otherwise manipulating your stock. If your stock is
manipulated by the shell merchant, your shareholders may
mistakenly think you are doing it.
save the cost of buying a shell – up to $125,000 for a Pink
Sheet shell and up to $450,000 for an OTC
and Costs of Conventional Public Offerings
SEC can drag its feet and request seemingly endless changes in the
registration statement. I have seen deals take over a year to get
through the SEC.
have never seen a company CEO show up for the closing of an
offering without large bags under his eyes. An offering can
dominate your time for as much as a year in the case of a public
offering. Imagine enduring endless meetings with lawyers and
accountants, while knowing that all of these professionals you see
before you have their meter running at your expense.
yourself, it is like buying a house and seeing the long list of
costs you are charged.
of the amount raised. For a small deal. Up to $40,000, for a $10
million deal, Up to $250,000
of the amount raised. For a small deal up to $40,000, for a $10
million deal up to $250,000
to be the big one, sometimes larger than the legal bill. Now
prospectus can be delivered over the Internet.
yourself. For small deal, could be $10,000, $10 million deal maybe
closing percentage of prospects contacted, number of prospectuses
mailed out, average purchase of each buyer, etc.
of 1% $3,333 for a small deal, $33,333 for a big one.
vary from state to state. See the NASAA
site for links to state securities regulators.
underwriter for an small, speculative deal can take the equivalent
of 15% of the proceeds. See Negotiating with the Underwriter.
agent, stock certificates, etc.
$5,000 to start, $500 to $5,000 each month, depending on trading
diligence and "dog and pony show" meetings
ever amount you want to spend, $5,000 to $25,000.
as a %
deal maybe 30%, large deal maybe 10%.
here to see expenses on actual IPOs
here to find out your alternatives to going public in an IPO
The SEC has new rules governing public offerings. See SEC Release
No. 33-8591. To find out what this means to you, contact us.
here for the next section, Reverse Merger Disadvantages and Risks