Raise Capital: Financing a Start Up Company
This newsletter will be short and brief. Most of the people that receive our reports are CEO’s, CFO’s, CPA’s and Attorneys and prefer it that way. We will examine how to raise capital utilizing a public company.
There are a few ways to go public and raise capital. The first way is for a company to go public in an IPO Initial Public Offering. When a company finds and underwriter to take them public, they go public with what is called an IPO. In order to find an underwriter, they must be doing in excess of $50 million in revenues. In the IPO process a company is doing 2 things at the same time: First, it’s raising capital, and secondly, it is going through the going public process. We help companies with the latter part, which is to go public, therefore making them a publicly traded company. They will have their own stock symbol and public company stock which people can purchase from a stockbroker, just like any public company. This is the ideal method for a company to go public if they are doing less than $50 million per year in revenues. We don’t raise capital ourselves but we make introductions to our very extensive network of stock brokerage firms. This way of raising capital has been the trend in the Wall St. community for the last several years.
Going public like this is ideal for companies that are small and can’t attract an underwriter to raise capital and to do an IPO. Raising capital via an IPO is not going to happen if a company is doing less than 50 million dollars in revenues. The way to raise capital now is companies go public without an underwriter, and then go to the smaller investment banks for help in raising capital. This is ideal for the investment banks and the new public companies, because of the high valuation they receive they give away less of the company for the same amount of money a private company might be able to raise. It works for the stock brokerage firms because they can help raise capital for promising young companies while also investing their clients money into public companies.
More and more small companies go public because of all the advantages a public company offers, such as: substantially increased valuation, using public stock as currency to buy other business and assets, investor exit strategy and eliminate needing expensive venture capital money and other expensive capital sources to raise capital. Raising capital becomes so much easier, since once you go public it gives you credibility and a benchmark trading price for raising capital. Many companies trade stock of their public company for advertising. They then use the advertising they trade for to promote their business, but smart CEO’s also use the stock for investor relations to let the public know that they are a public company.
A public company is regularly valued much higher than a company that is private. When a private company goes public, it will typically notice a very substantial increase in their valuation vs. their former private enterprise. So, what many sophisticated corporate officers and management do is go public without simultaneously raising capital and thus receives a higher valuation and benchmark stock trading price. Then, as a public company, they do a private placement at a deep discount to the stock market trading price with the provision that the investors hold the stock for 1 year. That is why investors get the discount from the open market trading price when they help in raising capital for new public companies.
Here is an example: a company decides to go public without raising capital at the exact same time and starts to trade. In this example the public company stock is trading on the open market for a price of $10/share. Any person can go online or call up a stock broker and purchase your stock at $10/share. Here is what a public company can do to make raising capital easier. The public company can sell their stock at a deep discount to the open market price (in this scenario, let’s say $8 share). The stock brokerage firm, the investment fund or the individual investor agrees to hold the stock for a certain amount of time without selling. The public company can sell stock to investors themselves or they can have one or more of the regional and independent stock brokerage firms help them. Many investment funds like to invest in this manner as well. Since, investors have the opportunity to purchase shares of stock in a public company at a substantial discount to what they paid for it if they bought it at the trading open market stock price it gives investors an incentive to buy your stock, thus making raising capital that much easier.
This is extremely valuable and a very helpful tool when you are raising capital. It may help some to re-read the above example to fully comprehend how it makes it easier for you to raise capital as a publicly traded company.
Many small investment banks – and there are thousands – can help you in raising capital once you are become a public company. They don’t take companies public themselves but can assist you in raising capital when you are public company. We have relationships with a network of independent stock brokerage firms and can provide face-to-face meeting with them, and help you to raise capital that way.. Public money is usually the cheapest and much less expensive than venture capital, private equity or borrowing money. So, the idea is to go public and then we can take you around to meet the broker dealers and funding sources in our network. Investment banks prefer to raise capital for companies that are already public. Remember: investors want liquidity. If they invest in a private company, they don’t know if and when they can ever take their money out. Once you become a public company it will usually make raising capital an easier affair. The increased valuation a public company receives in and of itself makes the going public process quite valuable.
We propose to take you public and then set up meetings with the stock brokerage houses that can then if they choose more easily raise capital for you since you are already a public company. The other advantage you have when you go public in respect to raising capital is that you can advertise to the general public to raise capital. This must be done properly and you must do all the proper filings including filing an S-1 Registration Statement with the SEC. This is quite an advantage because a private company cannot advertise and can only raise capital from friends people that they have a pre-existing relationship with. A private company is very limited in the ways it can raise capital.
When you go public it gives you a much better opportunity to raise capital and from more sources. Raising capital is difficult for a private company because there is no exit strategy for investors, you cannot advertise your offering and you cannot raise capital from investment banks and funds.
Whereas a public company that follows all the regulatory rules and regulations can advertise their stock offering to the general public. This is why there are so many thousands of small companies that are publicly traded. Make your raising capital experience a pleasant one and go public. A public company gives you the competitive advantage needed when raising capital.