How to take your fast growth company public

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How to Take Your Fast Growth Company Public

Disclaimer

This is not investment or legal advice

Seek competent counsel

Here are the basic points we have learned in decades of being involved

in taking companies public as a securities attorney, IPO market

maker, and underwriter.

IPO Advantages

1. Going Public creates wealth. Public companies sell at a multiple

of earnings.

Public companies sell at a multiple of earnings. If you make $1 million

per year, your stock in your company can be worth 30 times

earnings, or $30 million.

2. Going Public allows you to keep control.

If you get venture capital money, you will lose some degree of control. If you are public you can value the company at whatever price you can

get investors to accept, and investors will love your fast growth.

3. Going Public allows you to motivate key employees.

You can use stock options to pay and motivate key employees and

keep them loyal. Key employees are the key to your growth.

4. Being public gives you more access to money for your fast

growth.

Some call being public a corporate ATM machine. You can raise fast

money privately because the investors will have an exit strategy.

You can make additional stock offerings.

IPO Disadvantages

1. Going public and being public requires management time and

money.

Going public uses substantial management time. There are up front cash costs that cannot be

avoided. Being public requires an annual audit and regular SEC filings.

2. You have to disclose what you are doing.

The SEC requires all material information to be disclosed.

3. You will have to communicate with your shareholders and the

market.

The quality of your communication will determine the value of your

stock.

IPO Time and money

1. Legal and Accounting.

Your accountant will be expensive and late. You will have to get your books in shape. Your lawyers will

make a detailed analysis of all documents. They will do a

“corporate clean up.”

2. Investment banking.

Investment bankers will want a substantial commitment fee when they sign a letter of intent to take

you public. However, the investment bank may be willing to raise you

money in a private placement before the IPO.

3. Cash flow.

There are rules limiting what you can do to raise money after you have filed with the SEC. The process may

take longer than you think. Have enough cash on hand before you file.

4. Amount Needed.

There are few underwriters for offerings that raise less than $20

million.

5. Time.

Your accountant will need time to get two years of audited statements. It will

take 2-4 months to get through the SEC. Markets can change in that period of time. Start to prepare early for your

The Reverse Merger Alternativeto an IPO

1. What is a Reverse Merger?

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In a reverse merger, a private operating company merges with a

public shell company.

2. Why Do a Reverse Merger?

Reverse mergers are faster and may require less up front cash.

Advertised Private Offerings

1. New SEC Rule 506(c).

New Rule 506(c) allows you to advertise widely if you only sell to

accredited investors. Their accredited investor status must be

strictly validated.

2. Fast and Cheap.

A 506(c) offering can start in weeks and cost much less than an SEC registration or reverse merger.

3. Later Registration.

Stock sold in a 506(c) can later be registered with the SEC so your

company is public later on.

How to Keep Control of Your Company

1. Control Securities.

Company principals can hold securities with senior voting rights

that secure control of the company.

How to Maximize Your Valuation and Minimize Your Dilution

1. Valuation determines dilution.

In your IPO, the most important item is how your company will be valued. The

higher your valuation, the less stock you have to sell to get the money you need. Your investment bank will study

out the pricing of similar public companies.

2. Look for popular trends in the stock market.

From time to time, the stock market gets over excited about a particular

industry.

3. Study out what investors like and avoid.

You can review all similar public companies to discover these things.

4. Growth potential will be key.

Investors love growth. They will pay a premium if you are growing rapidly and have strong future

prospects.

5. Create public excitement.

The quality of your communication will determine how investors

respond. If investors see you as a scarce or unique company that

everyone wants, your price will be higher.

Making the Sale

1. Selling the Underwriter.

Your first sale will have to be to an underwriter. Underwriters have

special needs. They want to know that your company will sell, that it will survive and that their warrants will be very valuable in two years.

2. Selling the public.

IPO players are looking for hot new issues that will go to a premium in

the after market. Long term investors want to see you grow.

Special Problems for Start Up Companies

1. Start up or pre-revenue companies can be ignored.

Start up companies are not favored. Often an investment banker's first

question will be “what are the revenues?” If the answer is that the

company is pre-revenue, that may be the end of the interview.

As we specialize in start up companies with huge potential, we

have developed proprietary techniques to overcome this issue.

Find out more. For a free consultation that is not a sales pitch,

Call John Lux(240) 200-4529

John.Lux@Securities-Law.infowww.GoPublicAttorney.net

How to take your fast growth company public

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