Going public

Going public is the process of companies going from privately held to publicly held. They do this by having many shareholders and by registering shares with the SEC so that there are 'free trading shares'. There are several methods for going public.

Direct Filing method (APO)

The Direct Filing method (alternative public offering) is essentially an IPO without a simultaneous money raise, and does not have to be executed by a registered brokerage firm acting as an underwriter.

• Time—typically 5 to 8 months (depending mostly on the responsiveness of the company)
• Cost—under $100,000 USD
• Raising Capital—The company may raise money during and after the process of going public
• Disadvantages—Money is not necessarily raised by others during the process. However, the company can conduct a private placement during the process to raise money, and after going public, raising money becomes much easier

Advantages:

• Cost much less than either a conventional IPO or a reverse merger
• Clean (no unforeseen issues), whereas with a reverse merger to an already trading ‘shell’, you cannot be sure you are not taking on the companies prior problems

Unlike in a reverse merger, the ‘shell’ is completely custom designed for the company going public

Reverse Merger

In a reverse merger, the private company purchases and merges into an already publicly trading ‘shell’ company and, like with the Direct Filing method, and underwriter is not needed.

• Time—typically about 3 to 6 weeks
• Cost—$300,000 to $400,000
• Raising Capital—Capital not necessarily raised, but like in the Direct Filing method, stock is now valued and tradable on an exchange.

Advantages:

Already have an existing shareholder base which can be both good and bad. By far the fastest way to go public on the OTCBB

Problems:

Potential unforeseen issues in the acquired shell and much more expensive than going straight to the OTCBB via filings. Not as custom as going public via direct filings.

Initial Public Offering (IPO)

An IPO is basically a Direct Filing in conjunction with a simultaneous money raise, and must be executed by a licensed brokerage firm acting as an underwriter.

• Time—12 months, up to 2 years
• Cost—$1,000,000 to $2,000,000 or so (generally the company will be out of pocket a minimum of 50% of this amount prior to becoming publicly traded).

Must be executed by a registered brokerage firm. This means a firm must be willing to take you public, and raise you money.

Advantages:

This method typically raises more capital than other methods and the capital is raised by the underwriter.

Problems:

Conventional IPOs are somewhat out of favor right now. Underwritings are very expensive and may be delayed and many are canceled. The issue price can be changed by market conditions or by the underwriter (brokerage firm) at any time, or much worse, canceled altogether at any time, after much expense. Finally, most smaller companies will find it extremely difficult, if not impossible, to find a brokerage firm to raise them money in a conventional IPO.^[1]

References

1. ↑ Going Public