The Blog For Entrepreneurs

1. Firstly, like any other Casino you have to know that the house always wins. Sure, some casinos fall by the way side because of bad management or lack of players, but generally the house ALWAYS wins. Even if a punter wins massive, as one of my Casino owning buddies says “It’s only a loan”.

When you are doing an IPO the Investment Bank is the House. They will charge fees in the form of shares, options to buy stock at a discount or other mechanisms including good old cash. The Investment bank will be taking very little risk on your business, just like the Casino bosses, they only play the games where the odds are stacked in their favor.

2. In a Casino if you are gambling like a whale you will get the best rooms, free flights and lots of freebies from Casino’s throughout the world. They will love you as long as you are playing, even if you are winning… They know the longer they keep you at the tables, the better their odds of winning more of your money.

An investment bank will be interested in you as long as your company is performing. If you have come to the market with dazzling projections and you do not hit them, you will find that invites to investor conferences in the Bahamas will dry up and your phone will be ringing off the hook with a junior broker being rude to you about your company’s performance and telling you to ‘up your game’.

3. Casino’s will offer you credit, allow you to pick up chips on your room key and generally provide you with whatever you want when times are good and you are spending. When things go bad…..

Investment Bankers make their money from doing deals. When you are in favor they will offer you money, acquisition deals and access to pools of funding to do those deals. When things go bad………

I am sure the above has got you highly motivated to float your company on the stock exchange tomorrow! OK, maybe not exactly, but the statements above are worth bearing in mind so that you know what you are getting into. The markets, whatever people say, are a nest of vipers, as long as you know that, you know what to expect.

The Benefits of Going Public

So now that I have put you off completely, let me explain the benefits of going public.

1. Capital – We all want it and we all need it but it seems very hard to come by. If you are on the markets that investor you have been speaking to for the last six months will be able to get shares in your company and get out when he wants, not when you are bought out or float at some unspecified date.

2. The shares in your company become currency. In the last two years I have been involved in deals where over $20mn of transactions have gone through on share purchases alone. From a small Internet business bought for $150k in shares to multi-million dollar mergers. If you plan on expanding you will be amazed at what deals you can do with shares.

3. Enhanced reputation. When people deal with a public company there is an element of safety involved. i.e they know if you screw up you have a lot to lose reputation wise and therefore possibly share price wise.

4. Exit route. If you are like many entrepreneurs you will be one of those people who is buzzed up by starting and getting something going, not necessarily by managing the enterprise. Being listed gives you the option to exit by having a market valuation on your holdings, which can be sold to management or outside entities very easily (depending on what your shareholding level is).

If you understand the pitfalls of being a listed business as well as being aware of the benefits you have more of a chance of making this potentially excellent way to raise capital a successful move for you and your company. Also… don’t just think this method is for the big boys who have tens of millions in income and potential valuation. I will be following up this post with one on what the requirements for being public are, how to do it and a few tricks of the trade for the smaller company.

Regards
David
@OneLifeNoFear