In tradition of Chaucer's Canterbury Tales, here are two fables that illustrate to entrepreneurs and investors why being public is only sound business strategy.

The Tale of Business Owner

In 2004, your private company is grosses $1 million per year. Your Fairy Godmother will give your company $1 million for expansion of your company. You won't have to repay money. You'll keep 100% equity in your company.

Your alternative is to take your company public and raise $1 million for it in a private placement. The process will cost you a minority interest in your company. Your insiders will retain about two-thirds of your company's equity as shares in your public company. Your insider group will have about 3,333,333 shares of public company's stock. You'll risk less than US$50,000 to go public in United States. In either case, you'll use investment money wisely and make acquisitions to rapidly build your company. In five years or less, you'll want to sell your company. At time of your company's sale, your company's profit is $3 million/year.

Which offer should you have taken five years earlier to get best price for your company?

The Fairy Godmother option leaves you with 100% ownership of your private company. Your private company could sell for as much as 1.5 times of its annual profit (considered by most business brokers to be a very high estimate). Your golden parachute is worth $4.5 million.

The public company option assumes that your public company will merge in five years with a stronger multinational corporation. Your company's stock should trade over $60/share. At that price, your 3, 333,333 shares will be worth about $200 million.

Which was better deal?

The moral of this tale is: take your operating company public! The money you'll raise from your equity financing isn't as much as money you'll earn from sale of your stock. Being public allows you to leverage value of your company because market capitalization (shares issued multiplied by share price) are almost always a multiple of balance sheet value of that company.

The Tale of Angel Investor

It's 2004; you have one million dollars that you want to invest in an operating company. There's a private company on other side of town grossing $1,000,000/year. It's well run and you will get 50% ownership of company for your money.

The Dow Theorists (and yours truly) have always emphasized that most profitable way to invest in stock market for average American is to invest in harmony with primary trend. In Dow Theory terms, this would mean investing in a period of severe undervaluation and holding on to your stocks (or dollar cost-average into your portfolio) until end of bull market – such as September 1999 when Dow Theory bear market signal was given -- and then stay out until primary bear market has fully asserted itself. I myself sold all my stocks in January 2000, and since then, I have maintained that we are still in a secular bear market, despite fact that I am still bullish in intermediate term. When current bear market bottoms, I believe that we will be seeing new lows in major stock market indices -- such that stocks will be attractive from a valuation standpoint once again.