The Myth of "You Are too Small to Go Public."

[This is an article written by my associate republished here as it is absolutely correct.]

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The Myth of “You Are Too Small to Go Public”

Let’s begin by saying you are never too small to go public. Period.

This is a myth that got started with the top tier investment banks who tell a client who has either no income or $500,000 a year or even $50,000,000 a year that “you are too small to go public.”

The problem is the top tier investment bank doesn’t really tell them why “they are too small” or that they can go public anyway with another investment bank that deals with smaller companies, or that it is in their best interest to go public as fast as possible.

The truth is I have taken dozens of companies public with little or no income. I have taken startups and developing companies that were losing money every month public.

The Why

I had a client once whose next-door neighbor was a vice president at one of the top tier investment banks. Well after talking to me he went and asked his neighbor if he should go public and of course, his neighbor said, “You are too small.” It was a startup computer company.

Well my client relayed this to me, and I simply said, “Put your neighbor on the phone with me.” And he did. And of course, his neighbor dodged almost every question and hemmed and hawed when not dodging, while I simply cornered him in, one lie after another, with a simple question, “How is this NOT in my client’s, and your friend’s best interest to go public right now?”

Finally, after about 30 minutes of dodging, out of frustration, he blurted out the absolute truth. “Don’t you realize that I can’t raise $1,000,000 for someone like this? I have over 10,000 brokers that all have to participate in an offering. We need to raise at least $100,000,000 dollars in order to take someone public. Or I will have 10,000 brokers mad at me!” “Oh”, I said politely, “So it is not that he is too small to go public, he is just too small to go public with your company.”

“Yes!”, he said. And I said, “So you would agree then that it is in your neighbor’s and my client’s best interest to go public now with me?” “Yes, of course,” he said, as if he had been advising that all along. And the neighbor/client of mine with the startup computer company did and was a public company three months later.

Why Is It In Your Best Interest?

Going public, though most people look at it as a way to raise money, is actually a leverage tool that helps you make money. For example, do you have any friends who ever raised $15 million in three finance rounds from venture capitalists? How much ownership are they left with? Ask around if you don’t know. But it is typically, 12-15%.?When you go public you could raise $15 million or more and still own 80% of your company. That’s leverage. Why wait to go public and give away 85% of your company and then go public. Top tier investment banks would rather refer you to their venture capital division and help you grow your company with small raises while obtaining 85% ownership of your company and THEN take you public. See the advantage to them?

Go public from day one and you can raise the same money and keep a way larger ownership in your company. Advantage to you.

Some of the other leverage abilities that will help you grow your young public company faster and bigger than a non-public company are:

• Grow your company faster and make it more powerful by attracting top personnel without necessarily huge cash outlays.
• Grow your company faster and make it more powerful by attracting top notch team members to your board of directors.
• Raise money faster and cheaper by increasing the “liquidity” factor for your investors.
• Grow your company faster and make it more powerful by increasing your ability to attract “mergers”, “acquisitions” and “strategic partners”.
• Grow your company faster and make it more powerful by increasing its ability to compete for large corporate contracts.
• Leverage your personal return on investment as an owner by decreasing the amount of time it will take you to make money on your investment, as well as increasing the valuation of your company, as well as, changing the liquidity of your asset to a much more liquid form than that of a private company.
• Grow your business faster and make it more powerful by increasing your status in the eyes of all those you do business with.

And growing your company is not the only leverage. If you are an existing profitable yet small company, some of the leverage points are:

• Increase the value of your company upon sale or exit strategy. Many public companies achieve valuations that are three, ten or even one hundred times or more the valuations of similar private companies with the same income and assets.
• Want to retire? Well, why sell your company for $5 million with 20% down and a note for the rest while someone then proceeds to destroy your company and give you back an empty shell? Take your company public, install professional management (there is your “retirement”), sell a piece of your now more highly valued company to get your entire $5 million, and still own 60% of the company. Now you can retire, get $5 million, and still control the company from the board of directors while still reaping dividends from operations in your retirement.
• Solve dozens of estate planning problems by simply taking your company public. Don’t want your lifelong project to be destroyed by greedy heirs? Take your company public and bequeath stock interests to your heirs. That way anyone who wants out can sell their shares rather than force a liquidation or sale of your company.
• And if you don’t feel like selling or retiring yet. Simply grow your company faster and bigger with all of the leverage points in the first section above.

You see despite the lies that Wall Street top tier firms and personnel might tell you, it is ALWAYS in your best interest to go public NOW…provided of course you do it right and with the right people. That’s where we come in….to help you do it right. But that is the downside, not everyone in the investment banking industry has your best interest at heart. Many an investment banker and investment bank are only in it for money and their best interests and not yours. Our Golden Rule: Never take your top tier advice from the guy who is giving you or raising you the money. For ultimately the advice he will give you is advice to protect his or his client's best interest NOT yours. Seek out knowledgeable independent consultants for your top tier advice.