We now commence diving into details of questions to ask potential advisors looking to take a company public. One of the most important threshold questions is: Can we benefit long-term from being a public company, and if so why is it preferable to remaining private? Is my industry and stage of development attractive for public company investors?
The first chapter of my reverse mergers book is all about this question. There are advantages to being public, such as easier access to less expensive capital, ability to acquire other companies using stock as currency, rewarding executives with valuable stock options, an exit strategy to sell over time for the entrepreneur and his prior investors, and hopefully good PR when your financial results are reported each quarter. Negatives include the costs, risks of your stock being manipulated (in particular in the microcap markets), risks of stockholder and other lawsuits, and the public disclosure of very detailed information about the company’s financial performance, executive compensation, related party transactions and the like.
Even if the advantages seem to suit you, your company needs to be right to be public. If you are stable with no growth strategy, or in an industry that is not so “hot” on Wall Street, or it may be difficult to handle the costs (to be covered later), then going public may not be for you. Look at other similar companies that are public, do your research, and ask the advisor to guide you as well. But for many companies, in particular those needing to raise large amounts of capital over time, going public can be tremendously beneficial.
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