Many people looking to go public think that they will automatically be able to raise money after going public because they believe that if they go public and get a ticker symbol, then get their stock trading, they can sell their company’s stock directly into the market and raise money. This is only half truth. You can sell your company’s stock to raise money after you go public. But the whole truth is: You just cannot sell it directly into the market.
This is perhaps the most significant misconception that people who contact me have about going public to raise money: If our company goes public and gets a ticker symbol, then we get our stock trading, we can sell our company’s stock directly into the market and raise money. What they don’t understand is the rest of the story: The federal securities laws prohibit a company from selling its stock directly into the market after the company is trading. The market is only for trades by people who already own your stock, not for you to sell your company’s stock to raise money directly.
The story I hear usually goes like this: I’ll use your Go Public Direct Program to go public and get a ticker symbol. If I get a symbol, then I can hire investor relations firms to promote my company. I’ve got a great story. My company’s stock price will certainly rise. Then I’ll be able to raise a lot of money.
I then ask, “How?” The answer usually is, “Well, I’ve got a good market price and decent volume for my stock, so my company will raise money by just sell our stock into the market.
When I tell people they cannot do that, they are amazed. But it’s true. The federal securities laws don’t allow this. They allow your company to raise money by selling directly to investors you know through personal contact and not by taking your company’s stock down to some broker and selling it into the market, even if you have a ticker symbol, a great stock price and good volume. You simply cannot do that.
“What about IPO’s?” people ask. IPO’s are not sold directly into the market. IPO’s are sold by brokers directly to their customers who they know, not directly into the market.
Bottom Line: Stock Market sales are only for Investors who already own your stock. They are not for sale of your company’s shares directly. They are not allowed as a means of raising money for your company.
Check back again next week for another going public half truth exposed.