Going Public without an IPO
To go public, you cross the business equivalent
of a mine field!
Two available paths are:
IPO. Initial Public Offering.
An IPO combines two processes:
The process of going public and the process
of raising capital.
An IPO is the most visible way a company
goes public, but for 100 businesses that
do all the right things to complete an IPO
only five succeed. The other 95 are very deserving
and each likely spent over $500,000, only
to see their IPO withdrawn by decision of
the investment banking firm.
Market volatility and the "crowded conditions"
on the calendars of investment banking firms
are a reality. Nonetheless, some IPOs are
completed. If raising over $15,000,000 of
public money is your priority and you are patient and you do not mind letting others decide your
fate, an IPO may work for you.
Beware further. IPO investors have come to
expect a "first day POP." By under
pricing your shares, the firm can deliver
100% or more return to selected clients in
one day.
Reverse Merger.
A reverse merger is a certain method with predictable timing where a private company goes public by merging
with a "shell corporation."
In a reverse merger the two processes of
going public and raising capital are unbundled
and greatly simplified because no capital
is raised within the transaction. You contribute
an operating business and get 90% to 95%
of the stock.
A clean, audited shell contains no material
assets or liabilities. It pays for and completes
SEC registration of shares. At closing, the
"shell corporation" contributes
its shareholder base, adopts the name of
your company and appoints you as management
and Board of Director(s). Thereafter, a market
maker agrees to initiate trading of your
shares under NASDAQ rules. Your stock now
is public and a trading market may develop.
A clear exit strategy is key for getting
investors aboard. It is common for companies
with identified investors waiting in the
wings, to raise capital in a private placement
immediately following completion of the reverse
merger. Sometimes a funding can be accomplished
informally with no road show, minimal prospectus
and no investment banker.