(IPO) Initial Public Offering

• IPO is for an ongoing business.
• Start ups cannot do an IPO.
• You will need 2 years of certified financials.
• You need a corporate governance program in place.
• Typically you need a brokerage firm to agree to take you public though you could do an exempt offering under Reg D.
• Adjusting your personnel requirements and additional legal costs will likely add a significant operating cost to the company.
• Additionally all public companies are required to undergo certified audits every year. Cost can easily exceed $50,000 for just a small company. You need to look at the 5 year costs which can easily exceed $1,000,000

For your stock to trade publicly on NASDAQ

• To meet the over the counter listing requirements for NASDAQ you need stockholders equity of >$15 million or more.
• You need income from continuing operations before income taxes of >$1 million during two of the last three fiscal years.
• You need a public float or shares outstanding of > 1.1 million shares.
• You need to have a public market value of > $8 million.
• You need to have a minimum bid price of > $5 dollars.
• You must have a minimum of 400 round lots shareholders. A round lot is 100 shares of stock.
• You need a minimum of three market makers making a market in your stock. In other words, three brokerage firms that will agree to become market makers and trade your stock on NASDAQ.
• There are also fees that the company must pay to be listed on NASDAQ. For example a company with 1,000,000 to 2,000,000 shares outstanding must pay an initial fee of $5,000, plus an entry fee of $33,750 and an annual fee of $10,960.
• As you can see doing an IPO and becoming listed on NASDAQ is a very expensive process.
• The time factor for doing an IPO should be on average two years beginning from the point you made the decision to go public.
• In many cases having a public company actually increases loan risk because bank loan covenants become more strict.

Reg A Public Offering / IPO

Reg A Public Offering is an exemption for small business to raise capital but in this case through a public offering and not a private placement. Up to $5,000,000 can be raised within a 12 month period of time.

This is a very good option for certain size companies however, there are some fairly tough standards you must meet to qualify and the cost will easily exceed $100,000 and probably closer to $250,000. The problem as with all your options is the right choice will depend on your specific circumstances. You also must fully understand the aftermarket responsibilities you will be assuming and those also have significant costs associated with them.

The number of issues that need to be considered are too complex to list in this short explanation. The proper way to decide your best option is to first put all the information together in a (pre) securities offering. In this manner, you will have all relevant information in a central "core" document and from there begin obtaining opinions as to best course of action.

If you are considering doing an IPO your first step should be to prepare 2 documents. One document is a pre-offering prospectus/memorandum. It needs to be truthful. You not only get to see how your overall story reads but its a document that you can shop to some regional Broker/Dealers to gauge their level of interest. The second document is a comparison impact of a private equity placement v. public offering. A public offering will commit you to hundreds of thousands of costs and increased expenses. The five year cost can exceed $1,000,000. You want to make sure you fully understand the cost v. benefits.

See our FAQ's and Answers Sections for Raising Capital, Compliance Federal Law, Creating Investor Documents, Profiling and Finding Investors

Are you deciding whether to proceed or even how to proceed raising capital for your business or a new start up; you will find that there is a great deal of free information on this website. If you have decided to take your project to the next level you may want to consider reviewing our audio seminars. These seminars not only provide a much higher level of knowledge and information but on completion allow you to structure a “game plan” of what needs to be done and how to do it.

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