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 Going public is a major milestone for any company, big or small. The opportunity for financing, mergers, acquisitions, exposure, prestige and personal profit make it an objective for many.
Although the many rewards being public offers, anybody who thinks about going down the public company road has many doubts and apprehensions.
Many misconceptions shroud the area of the going public process; companies usually tend to believe that:
 Going public is only good for /or can be done successfully for big companies
There are very strict standards that won't allow small companies to enter, especially in the U.S.
It is extremely expensive - over a million dollars of expenses just going public and at least $500,000 yearly costs just to sustain it
The going public process can be done only through an underwriter and you must make an IPO
"Going public is only good for /or can be done successfully for big companies"
This apprehension is as common as it is baseless. There are thousands of small public companies in the U.S. and other places who owe there success and prosperity to being public. Many more companies who are now large successful corporations used to be small public corporations who would have never grown without going public early. Being public allowed them access to financing (and M&A) that other private companies simply couldn't reach.
Although the risk of going public early is larger, the opportunity is also much greater. This is especially true in businesses that are not high-tech, since in the high-tech industry there are several financing alternatives such as VCs, angels etc. In non high-tech sectors most investors wouldn't think to put a dime in a private company. Commercial banks hardly provide a sufficient financial alternative as their loans are characterized by being collateral based and sometimes they request personal guarantees from management. For many industries there are no practical alternatives to raise significant amounts of capital outside the stock market. For small public companies today, there are hundreds of investment banks that are specializing in raising capital just for small public companies in billions every year, this resource is inaccessible to private companies.
"There are very strict standards that won't allow small companies to enter, especially in the U.S."
Contrary to what many believe, there are actually no financial standards for being public in the U.S. The only real requirement of a company to be publicly traded is to be a "reporting company" (reporting annual and quarterly reports as well as press releases) that is approved by the SEC (Securities and Exchange Commission). The SEC does not care whether the company is successful or not or what its equity status, that's up for the investors to decide, they care that the company file accurate, transparent and timely reports to the public. The NASDAQ, AMEX and NYSE exchanges do have financial and other standards and requirements, but to be quoted on the Over The Counter Bulletin Board (OTC) you only need to be approved by the SEC as a reporting company and that a market maker file an application to list you (a technical matter). The OTC is a quoting system that is run by the NASD which also runs NASDAQ. In practical matters the trading is essentially the same as in the NASDAQ. The OTC has over 3,000 companies; most of them are small companies since bigger companies who match the requirements of NASDQ and AMEX usually transfer (once you meet the standards a company can transfer to the other exchange very quickly). The OTC is a major jumping stone to these markets, in the OTC's website there is a long list of companies who "graduated" to NASDAQ or AMEX (http://www.otcbb.com/dynamic/tradingdata/daily/graduations.htm).
"Going public is an extremely expensive process - over a million dollars of expenses just going public and at least $500,000 yearly costs just to sustain it"
On average this amounts might seem true but that's only because many of the companies who go through this process are medium or large and require much more professional assistance.
It seems that few know this, but a small company can do the going public process for as little as $150,000 cash expense for the entire process including legal and accounting fees (some of the legal fees can be paid by issuing shares and options instead of cash). Yearly fees for being public can be put below $50,000 (this does not include expenses for other financial activities such as raising capital and M&As).
Another known alternative is buying a public shell (a company that is currently public but has no operations, so the private company can be "bought" by it and become instantly public); this alternative has a high degree of risk due the possible existence of problematic legal history in the shell. Additionally, a "good" public shell is expected to cost between $500,000 to $1,000,000 and it doesn't save much of the legal fees.
"The going public process can be done only through an underwriter and you must do an IPO"
Another common misconception - one of the big risks associated with the decision to go public for many companies is the "time to market" (the time from decision to the time the company is traded) since most companies do the going public process through a straight forward IPO (initial public offering) with an underwriter (an investment bank that "underwrites" your shares). In this common process the underwriter also raises capital for the company, and the raising of the capital and the going public is connected. Since this process takes between 6-9 months, changes in the market and industry might cause a decision taken in April to raise money and go public look very bad in October. Many companies have been abandoned by their underwriters when the markets went south and the companies were left without money and outside of the stock market.
Contrary to what is generally believed, a company can become public without raising a single dollar and it can do it by-itself without an underwriter or investment firm. A way to become public is to draft a prospectus and get it approved by the SEC. The prospectus is a legal document (drafted by lawyers) that makes your company transparent (discloses financial statements, risk, business overview, share structure and other items) and lists your company's share for trading. Once approved, the company can ask a market maker to file an application to list its shares for quotation. Now that the company is already publicly traded it can raise capital from any entity when it feels it's suitable and with a short lead time.
Being public is not the key to success, its simply a platform that lets you try to convince the world everyday what you are worth. Being public is a tool that leverages the company's performance, financial capabilities and potential while providing return and exit for the shareholders. This tool is not only open to the big boys, many can go down this path and take their companies (and themselves) to the next level.
This article was written by Mr Niv Nissenson. He is a member of Dionysos Investments Ltd and also Vice President of Phoenix International Ventures Inc an American Aerospace Defense company that is currently in the process of going public in the OTC.
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