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We all know about the famous letter from one Virginia O’Hanlon in 1897 to the New York Sun newspaper asking if there really is a Santa Claus. Her father encouraged her and told her, if it’s in the Sun it must be so. The paper wrote an editorial entitled, “Yes, Virginia, there is a Santa Claus.” The original letter, by the way, is now valued at around $30,000. Now we imagine Virginia’s great granddaughter, of course also named Virginia, running a burgeoning biotech company and wondering if it really is possible for a company to have a healthy trading stock on the over-the-counter markets, or whether the only choice for small companies is to make it to a larger national exchange.
Well Virginia, unlike the fantasy the Sun chose (appropriately IMHO) to perpetuate in 1897, it is indeed possible for an OTC company to have a successfully trading stock. Yes in many cases the goal is to eventually uplist to a national exchange. But on the OTC markets, one can develop the right market support through a carefully concocted, legitimate brew of elements. If the company has a good story, strong and experienced management, good base of capital, a broad shareholder base, clean financials with limited overhang from convertibles and warrants, and, most importantly, a dedicated, reputable investor relations firm that really believes in the company, strong trading can be developed even in the OTC. I have found that where companies struggle it is usually because one of these elements is lacking. And that is also usually also the element that is keeping them from completing an uplisting.
One challenge smaller companies admittedly have is the inability to use short form registration for quicker and easier registered direct offerings. I have been advocating for a number of years now to fix that. The House Financial Services Committee has passed a bill to do so, we will see what happens. Until then these companies move ahead with cumbersome private placements, which are successful but more difficult to complete. But again, with all the other elements in place, raising money and trading successfully over-the-counter is very doable.
Read additional articles at the David Feldman Blog.
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