What are the costs of going public, and how do SPACs stack up? Part 3: Opportunity (the even less obvious cost)

In this series of articles, I’m outlining all the costs that pertain to going public. The first covers the obvious cost, money. The second covers the less obvious cost, time, and this final article covers the even less obvious cost, opportunity. 

Opportunity is one of the sneakiest costs that only those with experience in deal-making and going public really understand, specifically, the opportunity to set yourself up for a healthy, long-term oriented investor base.

As a public company, your goal is to have a substantial base of long-term oriented shareholders. Fast money -- shareholders who trade in and out of your stock regularly -- serve a valuable purpose by providing liquidity, but you need that bedrock of the long-term shareholders on which to grow. In the IPO process, a huge (and accurate) part of an underwriter’s value proposition is their ability to deliver these high-quality shareholders, who will have confidence in the deal because of the bank’s recommendation, which is in turn based on successful demand generation from your roadshow. A good underwriter will deliver these shareholders, but as I’ve detailed, it’s a journey to get there and often at the cost of pricing IPO shares at a significant discount to fair market value.

Direct listings, with their market-based approach, conduct their own demand generation and bet on these long-term shareholders biting when they throw their lure into the market. Again, this position is reserved for companies who can leverage their strong brand and reputation and don’t need to raise primary capital. 

The SPAC, because it is already a publicly traded company, already has an investor base of public shareholders. And if the SPAC’s deal is well executed, many of these investors will likely stick around because they are investing in both the SPAC board’s reputation, track record and intentions as well as the management team and business of the operating business. If you’re partnered with a SPAC not looking to make a quick buck but to nurture a company with great potential, this is where you really win; likely, the investor base will share these intentions.

Additionally, SPACs have an ace up their sleeve: Because it operates under a different set of rules as a public company buying a private company, a SPAC can share the target’s forward-looking projections with investors, bolstering investor confidence in future potential.

Opportunity: The even less obvious cost

There you have it: In this series, I’ve covered money, time and opportunity as costs to going public, hopefully showing that while fees are a very important piece of the equation, there’s a lot more to consider. The takeaway from all of this is that going public through a SPAC merger has many advantages versus a traditional IPO. When comparing the cost of these different methods, remember to consider non-monetary costs in addition to fees.