Many people looking to go public think that they will automatically be able to raise money because they read all over the internet and elsewhere that going public allows their company to access the U.S.capital markets. This is only half true. Having access to capital markets does not mean that your company will actually be able to raise capital after going public.
You see it all over the internet. “Hire us to take you public. Go public because it will allow you to access the capital markets.” What you don’t hear is the rest of the story: Your company must have the fundamentals necessary to raise the capital even if you go public if you are going public primarily for the purpose of raising money.
Having access to something is not the same as actually being able to get the thing to which you have access. Having access to the capital markets is not the same as being able raise the capital to which you have access.
If your company lacks the necessary fundamentals that real, serious-money investors are looking for, you won’t raise a dime from someone you don’t know. And you certainly won’t get a broker/dealer to raise money from you either.
People who pitch a reverse IPO, sometimes called reverse merger, with a public shell use this same line. But whether you go public directly or through a reverse IPO, sometimes called reverse merger, with a public shell, if you lack these fundamentals, no matter what you are told by someone else, I’m telling you the truth: You will not raise any money from serious-money investors or broker/dealers unless your company has all of the fundamentals set forth above. Rule of Thumb: 10 and 2 Rule. Ten million revenues/Two million profits before smart money investors or broker/dealers will be interested in even talking to you about raising money for you.
Still, I continue to be amazed that many entrepreneurs and companies think that by going public money will magically rain down upon them from the sky. That’s what I call “Field of Dreams” thinking. If you build it, they will come. If I go public, I will automatically be able to raise money.
Do not be deceived.
Check back next week for the next Going Public Half Truth.