When is the Right Time to go Public?
The reasons for taking a company public can be as varied as the reasons for starting the company in the first place, and will be different depending on the person who owns the enterprise. Some business owners want to benefit from the additional prestige that a public listing will mean for their company and its profile. Some want to have an additional source of capital – publicly traded stock – which they can then utilize in making acquisitions for strategic growth. Others are intent on attracting top talent to their enterprise and realize that one effective way of doing that is offering stock incentive plans that give key employees an ownership stake in the business.
Another of the common reasons we hear is that going public is an ‘exit strategy’, when the early stage investors and even the founders finally achieve a market-bestowed multiple on the value of their ownership and acquire the option to sell some of their own shares and reap some financial rewards for their years of risk and hard work.
Without doubt one of the best reasons to take a company public is to attain access to the investment dollars that can be raised in the capital markets. Canada has robust capital markets that offer sources of investment funds that are generally not available to private enterprises. Access to these sources can allow you to propel your company to ‘the next level’ by enabling you to do the things you need to do to make that happen.
Those are all excellent reasons to go public, and there are no doubt more. But is there a RIGHT time to go public?
Many entrepreneurs are worried that going public too early means giving up a lot of equity in their company before the real value proposition is achieved. Their concern is giving up too much too soon and diluting their ownership at the wrong time.
But the other side of that coin is: “If I can’t access capital to make my enterprise what it should be then I may never get to the ‘Promised Land’ at all!” In other words, it might be better to get additional capitalization now, and build the business successfully, than to never get to the next level at all – even if it means diluting your ownership more than you would like. The old adage that 20 percent of something is a lot better than 100 percent of nothing is one that many business owners would do well to consider. Entrepreneurs should bear in mind that not all equity deals need involve taking a large haircut – it will depend on the stage of development of the business and the capital needed and the current appetites of equity investors.
Of course, these are issues that are not easy to resolve. There will likely be personal considerations that speak to a sense of ownership and what the business means to the particular individual. Many people cannot get past the quasi-parental relationship they have with their business, tending to look at the enterprise as their ’baby’ or child.
The real question perhaps is not “when is the right time to go public”, but “when is the right time for ME?”
Since 2005 ITB Solutions has provided listings development services to stock Exchanges in Canada such as the Canadian Securities Exchange. ITB Solutions currently provides New Listing Services to the ITB Solutions has provided listings development services to stock Exchanges in Canada such as the Canadian Securities Exchange. ITB Solutions currently provides New Listing Services to the NEO Exchange. We assist companies with the listing application and managing the process to become publicly tradable in Canada, as well as offering advice on how to make the most of your public listing.
ITB Solutions Incorporated
Jeffrey Stanger, President