Public Offerings

Table of Contents

1. What is a Public Offering?

2. Who is This Good For?

3. When is This the Best Choice for Me?

4. When is This Not Advised?

5. Tips for Getting The Money.

6. Ingredients You'll Need on Hand.

7. Watch Out For...

1. What is a Public Offering?

Selling shares of your company to the public, in the form of stock. This is a good way to raise a lot of money -- perhaps tens of millions -- but it opens you up to intense scrutiny, first from the Securities and Exchange Commission, state regulators, and then from the financing community, such as brokerage houses. Once you are a publicly-traded company, your financial situation and many of your internal operations become public knowledge. You will also be required to make regular reports to your shareholders and to the securities regulators. An initial public offering or IPO is the first time a company sells its shares to the public.

2. Who is This Good For?

Companies with a well-established track record that are looking for at least $5 million to invest in the next round of product development, marketing, and expansion.

Some high-tech startup companies, especially in the internet field, have managed to go public on the strength of their concepts and business plans, even before establishing a solid track record, however, this is unusual.

Small Corporate Offering Registrations allow smaller companies to raise less than $5 million with fewer regulations.

3. When is This the Best Choice for Me

When your company has reached a fairly high level of success and you need a major infusion of capital to get to the next level;

When you have good, strong financial performance.

4. When is This Not Advised?

If your company is new.

If your company's performance is likely to result in the public market being unresponsive to investing, or investing at such a low price that it actually makes the value of your company less than it would be if funded through other sources.

When you're unwilling to have the ongoing public scrutiny and regulation that a public company entails.

5. Tips for Getting The Money

You will probably need an investment banker to help you arrange the offering and to underwrite the offering of the securities; some Small Corporate Offerings will not need an investment banking firm, although it might still be wise;

Try to get some publicity about your company while it's still private. You'll be prohibited by law from flogging your story immediately before a public offering, so you want to generate excitement long before you are in the black-out period;

Get a top accounting firm. Some investment banking firms will only take on companies represented by one of the major national/international accounting firms. It will cost a lot of money to make sure your accounting firm has your financials in proper order for a public offering.

6. Ingredients You'll Need on Hand

• A good securities attorney who is familiar with public offerings.

• A top accounting firm and complete, audited, financials.

• An investment banking firm.

• A hefty budget, perhaps as much as $500,000 to $1 million. Those advisors are expensive.

• A well-qualified Board of Directors and senior management in place.

• An Offering Memorandum.

• A good supply of antacid. Going public will give you heartburn, both during the process, and every quarter when you have to prepare your reports for the SEC.

7. Watch Out For...

Fees. Investment bankers typically get a fee equal to a percentage of the deal (often 3%) plus additional up-front fees. You'll also need a platoon of lawyers, accountants, printers, consultants. You've never seen a printing bill til you've seen one from the printer who prints up the legal documents for a public offering.

Pricing your stock right when it comes out. If you price it too high and the price drops quickly, your company will get a reputation in the investment community as a bad investment choice. If you price it too low, you'll make too little money on your offering, even if the market loves your company. Your investment advisors will help you find the right price.

The spotlight. You'll likely enjoy a burst of media publicity when your company's IPO hits the market. This can make you giddy. But the spotlight also brings lots of scrutiny and wakes up your competitors.

Distraction. Going public requires a lot of meetings, paperwork and filings, then cooperation with the investment bankers as they do their due diligence. Even employees who have stock options will get distracted by the hoopla surrounding a public offering. Who's minding the store?

Pressure. Once you're a public company, your shareholders will want results, both in terms of increased stock prices and of dividends. You will now have the pressure to perform well on a quarterly basis, often sacrificing good business judgement to meet the demands of a greedy market.

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