Professional Help Funding Your Company By William Cate Published April 2001 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] It costs money to raise money. Here are 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 IPO share price. The NASD limits IPO commissions to 18%. The "apparent" commission is around 15%-16%. Unless IPO can easily be oversubscribed, brokers double their commission by requiring principals to supply 50% or more of IPO buyers. They receive discount, accountable and nonaccountable expense on IPO buyers supplied by company. This effectively doubles their commission on an IPO.
The underwriter's retainer is half 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 payment of stock for services, especially stock promotion services.
Studies show that 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 professional a blank check. I've seen failed IPO efforts that have cost company as much as $15 million. The reason for obscene cost was professionals billing at $1,000 per hour. 2. Don't pay entire bill as initial retainer. I try for a formula of one-third retainer against costs. One-third payment when professional supplies company service expected by agreement. The last third when you get positive result that you expect from professional's service.
Alternatives It's cost and risks of doing an IPO that makes alternative methods of going public attractive. You have three choices: 1. You can use 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 IVCC requirements.