12 May Going Public: Dream or Reality?
Many private business owners dream of “going public.” It’s the ultimate entrepreneurial status symbol. Build a company and take it public. Well, you’ve really done something.
The mission of this publication is to empower you, the business owner, with information you need to survive and thrive, to help you make good decisions and avoid bad ones. To that end, we help you avoid wasting time and money. For 99.9 percent of us, “going public” is all dream and no reality. Here’s why:
- Despite public perception, public markets are not a means for “selling out.” They’re a source of capital. Growing companies need a lot of capital, and investors want to put money in companies that grow rapidly and promise healthy returns.
- Investors in public companies want proven, high-caliber management running the companies they invest in. If you’ve grown the business, made it a success, and now want to depart – well, you have a problem if you hope to “go public.”
- It’s very expensive to operate as a public company. And it’s become a lot more expensive with the new Sarbanes-Oxley legislation. To be cost-effective, companies must have healthy profit to make it economical.
- “Going public” is not for any ol’ company. That’s because the value of being public is primarily in the ability to sell shares on the open market. If your company does not have enough appeal to attract the attention of investors – ones that have lots of sexy options, such as Google, YouTube, Toyota and Disney – nobody will be there to buy your shares. So you end up like many others – enduring the burdens of being public but not enjoying the benefits.
In summary, public markets are a source of capital, not really an exit strategy. And they’re a source of capital only to very large and/or incredibly compelling and high-growth firms. You and I better spend our time on more traditional capital sources and exit alternatives.
“If your market capitalization (i.e., the value of your business) is less than $200 million, it’d be very difficult to ‘go public’ today and have any success. Institutional investors are a big part of the market and they won’t look at you if you don’t have sufficient size. You’ll also need a very compelling story, such as significant demonstrated growth and/or very unique or innovative products or services.”
Lance Lange Director, Equity Capital Markets Group, Robert S. Baird & Co.
“To go public today, you need to raise at least $75 million and have a minimum market cap of $400 million. Sure, a reverse merger will get it done, but it won’t get you the benefit of being a public company unless you meet the basic criteria that will get you invested in by institutions and followed by analysts/equity research.”
Stephen P. Bishop, Vice President, Southwest Securities