How to Raise Capital with a Public Company

 

There are a few ways of going public. One is for a company to go public in an IPO Initial Public Offering. When a company finds and underwrite 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 revenue. In the IPO process a company is doing 2 processes at the same time. First its raising capital & secondly it is going through the going public process. We help companies with the 2nd part which is becoming a publicly traded company and receiving a stock symbol and public stock which people can purchase from a broker or 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.

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. They want to go public because of the many benefits that being a public company offers such as increased valuation, using public stock as currency to acquire other companies and assets, liquidity, prestige and to reduce the need for expensive venture capital and other financing sources. It also makes it easier to raise capital since once you become public it gives you credibility and a benchmark trading price to raise capital against.

Public companies are typically valued higher than their private counterparts. So, what many sophisticated corporate officers and management do is go public without simultaneously raising capital and thus receive a higher valuation and benchmark stock trading price. Then, as a public company, they do a private placement at a deep discount to the market 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.

As an example, a company goes public without initially raising capital and begins trading on the open market at $10.00 per share. An individual can go on the internet or walk into any stock brokerage firm and buy stock at $10.00 per share. Public companies in this situation often sell stock in a private placement at a very substantial discount to the open market price (in this example, perhaps $8.00 per share). The investors agree to hold the stock for a period of time. (The issuers can sell the stock themselves or have small broker/dealers assist them.) Because investors can buy the stock at a deep discount to the open market price it give them quite an incentive to invest, thus making it easier to raise capital.

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