Investment & Financial Articles
Title: Professional Help Funding Your Company
Author: William Cate
Article:
Professional Help Funding Your Company By William Cate Published
April 2001 [http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
It costs money to raise money. Here are the primary costs in
doing an Initial Public Offering (IPO).
Your securities attorney will charge you anywhere from $75,000
to over one million dollars. Quotations for legal services below
$75,000 are usually offers to review and edit your filing. Costs
rise when your attorney must sign your SEC filing. The usual
attorney retainer is $25,000.
Your Certified Public Accountant will charge anywhere from
$15,000 to over $250,000 for their audit. They will want at
least a $5,000 retainer.
Your underwriter will charge a 3% nonaccountable expense, a 5%
accountable expense and expect up to a 10% discount on the IPO
share price. The NASD limits IPO commissions to 18%. The
"
apparent" commission is around 15%-16%. Unless the IPO can
easily be oversubscribed, the brokers double their commission by
requiring the principals to supply 50% or more of the IPO
buyers. They receive the discount, accountable and
nonaccountable expense on the IPO buyers supplied by the
company. This effectively doubles their commission on an IPO.
The underwriter's retainer is half the nonaccountable expense.
On a ten-million dollar IPO, this is a retainer of $150,000.
Your Investor Relations firm will want anywhere from $25,000 to
$800,000. Until recently, they demanded a large bloc of stock
along with their cash fee. The SEC is moving aggressively
against the payment of stock for services, especially stock
promotion services.
Studies show that the average cost of doing an IPO is about
$750,000. The odds of raising money with an IPO are about even.
Going public is a high risk game. If you win, you can create a
multinational powerhouse. If you lose, it can destroy your
company.
Here are two secrets to containing IPO costs. 1. Seek flat fee
agreements with professionals. If you agree to an hourly rate,
you are giving the professional a blank check. I've seen failed
IPO efforts that have cost the company as much as $15 million.
The reason for the obscene cost was the professionals billing at
$1,000 per hour. 2. Don't pay the entire bill as the initial
retainer. I try for a formula of one-third retainer against
costs. One-third payment when the professional supplies the
company the service expected by the agreement. The last third
when you get the positive result that you expect from the
professional's service.
Alternatives It's the cost and risks of doing an IPO that makes
alternative methods of going public attractive. You have three
choices: 1. You can use the Capital Funds Group Stock Exchange
strategy [http://www.capitalfundsgroup.com/raiscap/SCORregD.htm]
The cost is $20,000 plus audit. You should be trading within a
month. You can use your liquidity to attract investors. You can
present your investment opportunity to IVCC members, if you meet
the IVCC requirements.
2. You can buy an OTCBB shell. The retail shell cost is $150,000
plus the costs of an audit, due diligence investigation and SEC
filing. The total cost will be around $350,000. You'll get
around 60% of the issued shares. Only buy a currently trading
shell. Make certain that it's clean. This means there aren't
pending lawsuits. Your group gets all the insiders' shares. You
cancel past insiders' rights to buy stock. Over the years, I've
helped over 30 clients buy shells. I've never been offered a
clean shell. It takes time, knowledge and money to clean any
shell you buy.
3. You can do a spinoff. You can sell 10% of your private
company's stock to an existing public company with over 500
American resident public shareholders. The public company can
pay your stock as a stock dividend to their shareholders. This
gives you over 500 public shareholders. Under the 1934 U. S.
Securities Act, when you have over 500 public shareholders, you
must start reporting to the SEC and thus become a public
company. The cost of doing a spinoff can be as little at $25,000
plus audit and legal costs. Total costs are about $115,000.
The primary advantage of a spinoff isn't the cost savings. It's
the guarantee that your public company is clean. You won't face
an unexpected lawsuit. Your share price won't be buried by
million of shares of selling by past insiders.
The disadvantage to any alternative to doing an IPO is the need
to find a source of funding. The CFG program gives you access to
public investors, but not an underwriter. The Shell or Spinoff
strategies require that you or the service arrange a Private
Placement.
Unless you find a way to offer investors liquidity, your odds
of finding money are less than 1%. The low cost starting point
in this liquidity game is to use the CFG service. If you have
the assets and income, consider going public with a spinoff. See
article at:
[http://WWW.capitalfundsgroup.com/raiscap/expansionexit.htm] If
you are a major power in your industry, do an IPO.
The opportunity to raise risk capital is excellent as long as
this Bull Market lasts. I think it will last for several more
years. However, every day you waste is one less day you have to
build your company into a multinational powerhouse.
To contact the author: Visit the Beowulf Investments website:
[http://home.earthlink.net/~beowulfinvestments/] Or, visit the
Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
About the author:
He has been the Managing Director of Beowulf Investments
[http://home.earthlink.net/~beowulfinvestments/] since 1981 and
is the Executive Director of the Global Village Investment Club
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
|