Taking Your Company Public

Taking Your Company Public By William Cate http://home.earthlink.net/~beowulfinvestments/williamcateventurec apitalampequityfinanceconsultant/ Too often, it costs more money to go public than you can raise as a public company. In 2005, the average cost of filing an SB2 was over three million dollars. The average IPO (Initial Public Offering) financing on the OTCBB (Over-the-Counter Bulletin Board) was less than one million dollars. The engine driving SEC (U.S. Securities and Exchange Commission) costs ever upward has been the costs of GAAP audit and attorney's fees. Due to Section 404 of the Sarbanes Oxley Act, the average GAAP audit now costs about $1 million. Legal fees average $227,000. These costs are expected to continue to rise steeply until the end of the present Bull Stock Market. If you are considering filing an S1 Registration Statement, you should double these average costs. Historically, the economy bus to public company status has been the reverse merger with a shell company. In fact, a reverse merger is the most expensive way a private company can go public. However, in August 2005, the SEC effectively ended the use of reverse mergers with Rules 33-8587 and 34-52038. Under these rules, a shell company that pays more than 50% of its issued shares to buy a private company is a reverse merger. The new rules require that a shell buyer MUST file a full registration disclosure statement with the SEC. The shell buyers must file either a SB-2 or a Form 10 with the SEC. This means a million-dollar audit and a quarter-million dollar legal bill. While the rules have reduced the number of firms selling shells, the business is still alive and well. The proposed solution is to have the Shell Company issue 49% of its issued shares for the private company reverse merger. An offer that is even a worse deal for the private company than the historic reverse merger. If you don't understand why reverse mergers are costly, when the initial costs appear low, talk to any equity finance consultant. There are two ways to raise money going public. You can do an IPO to the public. If this is your option, you must file a SB2 registration statement. You must have an underwriter willing to raise more money for your company than it will cost you to take it public. Unless your company is nationally known, you should have a clear understand as to why the underwriter thinks that the public will buy your IPO shares. If you think that your business plan, management team or corporate vision are solid reasons for the public to buy your stock, you're mistaken. Always remember that a "Firm Commitment Underwriting Agreement" isn't firm. The alternative to an IPO is a PIPE (Private Investment in a Public Equity) financing. The buyers of your shares are either institutional investors or accredited investors. These investors are buying your shares to make money from selling your shares. Their basic question is how certain are they to make money from playing your stock. If you don't have an answer to this question, you won't find investors to fund your PIPE offering. There are many merchant bankers and consultants offering PIPE financings. You must clearly understand how their investors expect to make money from funding your company. Many profitable investment strategies are lethal for your company. For instance, Toxic Convertibles are moneymakers, but will destroy your share price. There are other strategies that are equally as dangerous for your company. The stock game is like passing a burning match. As the match passes from hand to hand, eventually someone must be burned. A credible financing offer ensures that the investors aren't the ones to be burned in the game. It's your job or that of your equity finance consultant to determine that your company isn't going to be burned. Go public, if you can raise more money than it will cost you to take your company public. Be certain that whatever financing strategy you adopt won't come back and destroy your public company. Follow these simple rules and a public company financing strategy works. Ignore than and you'll at least lose money and you will probably lose your company.