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 The other 95 are very deserving and each likely spent over $500,000, only to see their IPO withdrawn by decision of the investment banking firm.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.
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.
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