The process of going public generally requires the pooling of expertise specifically designed to take the load off your internal team, as your business needs to keep operating and likely doesn’t have the manpower to list or go public directly.
The main points with listing your company onto a stock exchange with outside consultants is:
– Clear definition of responsibilities
– Clear milestones
– Clear definition of documentation required
– Having example documents from clients who have successfully listed to give you an idea of the extensive nature of the documentation required
– Ensure you define the jurisdictions for National and International Investors, with a clear profile of the kind of investors, amount of funds that can be raised, and the timeframes, such as IPO pre-listing funds, post-listing funds, and subsequent rounds (This should be a clearly defined capital raising document, similar to a marketing plan, with budget, number of expected investors, sources, resources required, time commitments, etc.
– The project team for the capital raising should include an advisory board for compliance, exchange listing documents, financials & valuation process, prospectus or offering document preparation, and public relations
Businesses should carefully select who they choose to work with, generally firms with a Broker Dealer license have advantages over general business consultants.
Many consultants will promise to raise capital but never have any intention of meeting the capital raising requirements of your firm. This is apparent when there is no clearly defined strategy signed. The reality is however, these professionals are more like potential sources of funds as no broker dealer or capital raising team can promise better than their best effort. Best Efforts in money raising terms means that they will raise the capital at their own pace, make introductions, contacts, and attempt to raise you money, however, if their source of potential funds runs out our the project doesn’t get the attention and traction they desire then they stop raising the funds.
As a company, you need to accept that they have no legal obligation to raise the capital when it is on a Best Efforts basis. The term generally precludes any guarantee or commitment, as it implies they may not succeed. This is why the marketing plan for raising capital is important, as it defines exactly what the best efforts are to satisfy your money raising requirements.
An IPO and admission to trading of shares ties down a lot of manpower, and generally is capital intensive. For example, the following lower board or alternative exchanges for new smaller to medium firms has these timeframes and costs:
– GXG Markets range from 25,000 GBP including consultants to 100,000 GBP (8 weeks+)
– London Standard ranges from 50,000 GBP upwards depending on market capitalization of the company (12 weeks+)
– London AIM ranges from 150,000 GBP to 400,000 GBP depending on the market capitalization and the market maker/broker or NOMAD (12 weeks+)
– NYSE Euronext Marche Libre ranges from 75,000 euro to 200,000 euro (8 weeks+)
– Deutsche Boerse Franfurt Entry Standard ranges from 150,000 euro to 200,000 euro due to new regulations intensive prospectus related documents are required (12 weeks+)
– US OTCBB (Over the Counter Bulletin Board) ranges from 150,000 USD to 500,000 USD depending on the brokerage house involved in IPO financing, whether the listing is direct or through a merger
– Canadian Stock Exchange
– Bahama Stock Exchange
– iFundx Funding Exchange
All of these exchanges can have listings with minimal funds raised, however, it is most advisable to raise as much capital as possible prior to listing. Due to the fact you are raising capital prior to listing, you need to have the appropriate project team to facilitate the offering documents, subscription agreements, and materials to meet jurisdiction regulations of which you are raising funds from. Once you have these documents prepared, raising capital for an IPO is basically the same as taking private placements into a private company until the point of acceptance for listing where there then becomes a “market” where people can buy and sell the shares in your company freely.
Your internal team should work alongside the external team preparing the IPO process, including direct contact with service providers within the process for ease of communication on requirements, changes, and compliance. Many providers demand exclusivity in communications with service providers, but this generally prolongs listings, slows down capital raising, and produces miscommunications. Direct contact with service providers from the first moment is important.
Going Public For Liquidity
Within the markets designated for Small to Medium Enterprises, generally very little liquidity exists outside of high-profile firms and IPOs. In many cases, the liquidity depends on the marketing a development strategy of the Companies capital raising efforts and Public Relations. In most markets the broker dealer or designated sponsor ensures a liquid trading market and high price quality, however, where broker dealers have only been paid fees to list a firm, they generally pay little effort to liquidity.
An experienced stock promoter will generally be able to look at a company’s structure, story, and investor profile and define the amount of trading and cost to market and reach the individuals within the Law. However, most of these methods by definition are offerings, and all disclosures possible should be included in any strategy to build a retail liquid market.
Most IPOs are implemented by banking syndicates, i.e. a combination of several banks, brokers, and financial service providers. The lead manager is generally the overall project manager who manages all other parties, the process, and due diligence for implementing the IPO as basically a bookrunner. This group is expected to maintain the lead source, potential investors, current investors, and organize the placements. A syndicate generally improves the chances of placement over a sole broker dealer or issuer based financing and capital raising. The costs of the syndicate banks services generally depend on the amount of capital raised, the scope of services provided, and number of banks involved in the capital process.
The Bank is generally responsible for:
– Reviewing the company to see if its market ready
– Due Diligence which differs per jurisdiction
– Structuring the issue
– Valuing the Company
– Supporting the admission process
– Marketing and placing the issue
– Post-IPO support
The Beauty Contest
Similar to all sales methodologies utilized to define the investor of choice, there is a beauty contest within the listing market. One can list on a stock exchange by simply filling out the right documents, but never be able to raise capital because they didn’t dress themselves up for the Banks or investor interest. For the most part, investors and bankers want a tailored issue concept which catches the attention of investors and Bankers alike. Experience in raising capital, and depth with the professionals within the Company and IPO team, as well as depth in sector knowledge, research, and realistic understanding of how that applies to the funds that are being raised. The company itself should have a connection with investors, networks, and keystone investors who have been active at continually funding the project and concept. Together with the Bank, a marketing strategy incorporating the strengths and placement power defines whether a firm can win the beauty contest.
In general, Legal Advisors should be part of the capital raising process from day 1, however, the general areas of expertise for advisors include:
– Issuer Data for admissions
– Legal Due Diligence
– Company Law
Auditors and Tax Advisors
Most valuations, listing admissions documents, and exchange regulators requires audited financials and certified annual financial statements to become listed and or as a disclosure document to raise funds. This continues with the ongoing use of an auditor for annual, quarterly, and transaction based financial requirements and reporting.
Generally when you are listing on a regulated exchange, the valuation services will be part of the process.
If you are interested in a free proposal for your business to list on a stock exchange and raise capital, contact us now,