How hard is it to take a company public?

Taking a company public is harder than most founders hope and easier than most founders fear. The filings, the audit and the SEC review are a known ten-month process that specialists run every day. The hard parts are the three things nobody can do for you: raising $500,000 to $2 million from people who know you, running the business well while it is being audited and reviewed, and then operating in public for years afterward. Companies that finish and get value from it are not the biggest or the best funded. They are the ones whose founders execute.

Joel Arberman, Meraki Partners. Based on 17 companies taken public: 11 by direct listing, 4 by reverse merger and 2 by IPO.

What is the hard part of going public?

Not the SEC. Founders arrive expecting the regulators to be the obstacle, and they almost never are. The registration statement, the audit, the transfer agent, the market maker's filing and the OTC Markets application follow published rules, and a competent team gets through them in about ten months. See how to take your company public for the steps.

The hard part is everything the rules cannot do for you. You have to raise the money. You have to keep hitting your numbers while lawyers and auditors are asking for documents. And once you are public, you have to keep reporting, keep communicating and keep executing, because being public amplifies whatever the company already is. If the business is sound and the founder follows through, the process is demanding but predictable. If either is missing, no adviser can carry it.

How hard is the SEC review?

Less than its reputation. The SEC reviews a first registration statement, sends written comments, and the company responds and amends. Two or three rounds are normal, each taking a few weeks. The comments are about disclosure, not about whether your business is good: they ask you to explain risks, clarify accounting, and support claims. A securities lawyer who has done this before knows what the staff will ask. The review is slow, occasionally frustrating, and rarely the reason a company fails to list. See understanding S-1 filings and SEC review.

How hard is the audit?

It depends entirely on your records. An organized company with a bookkeeper, reconciled accounts and contracts it can find needs about six weeks of preparation and about eight weeks of audit by a PCAOB-registered firm. A company that has run on a shoebox and a founder's memory can take months longer and spend more, because the auditors have to reconstruct what should have been recorded. Related-party transactions, undocumented loans from the founder and inventory nobody counted are the usual trouble spots. None of them is fatal; all of them are slow. See do I need audited financials to go public.

How hard is it to raise the money?

This is the hardest step, and it is the one that decides whether a company should go public at all. Our clients raise $500,000 to $2 million privately, usually from about 50 people who know the founder: customers, suppliers, peers, former colleagues, friends. That money pays for going public, the first year of being public and growth. No investment bank raises it for you at this stage, and neither do we. We prepare the company and coach the founder, and the founder makes the calls.

We treat the raise as the market's reference check. People who have watched you work for years are deciding whether to back you with their own money. If they say yes, the public market will usually engage too. If they say no, that is information, and it is why we tell many founders not to proceed. See how to prepare your capital raise before going public.

How hard is it to get trading volume?

Harder than founders expect, and it is the part of going public most often misunderstood. The day your stock is quoted, nothing happens. There is no underwriter placing shares with institutions and no coverage. Volume builds as the shareholder base grows, as the company reports results, and as it does the things it said it would do. Companies that treat the first trade as the finish line are disappointed. Companies that treat it as the start of a multi-year plan do fine. See what float is and how much you need and who invests in micro-cap companies.

How hard is the first year as a public company?

It is the hardest year. The company is learning quarterly reporting, the board is new, the stock is thin, and the costs of being public, about $300,000 to $500,000 for an early-stage OTC company, arrive before most of the benefits. Founders who budgeted for it in the raise get through it. Founders who assumed the listing would pay for itself do not. See what should happen in the first 100 days and the ongoing costs of being public.

What makes going public harder than it needs to be?

• A messy cap table: handshake equity promises, unsigned option grants, investors nobody can find.
• An LLC or S corporation that has to be converted mid-process rather than at the start. See can an LLC go public.
• Related-party dealings with no documentation: the founder's building leased to the company, loans in both directions, family on payroll.
• A dispute with a co-founder or an early investor that surfaces when the lawyers start asking questions.
• A shell company bought to save time, carrying liabilities nobody disclosed. See publicly traded shell companies.
• Promoters, paid stock touts and financiers offering money on terms that will destroy the company's stock within a year.
• A founder who stops running the business to manage the listing. The process needs a few hours of the founder's week, not all of them.

What makes it easier?

• Converting to a C corporation, cleaning up the cap table and putting a board plan in place before anything is filed.
• A bookkeeper or controller and a PCAOB-registered auditor engaged early, with the audit sequenced so the financial statements do not go stale before the filing.
• Running the private raise alongside the audit and the drafting, so capital is in place as costs come due.
• One adviser who has done it before coordinating the lawyers, auditors, transfer agent and market maker, so the pieces fit and decisions made early do not cause problems after listing. See what a going-public consultant does.
• A plan for the first 100 days after listing written before the first trade.

Is it harder for a small company?

The process is not harder. A company with no revenue files the same forms as a company with $20 million, and more than a dozen of our 17 listings were pre-revenue. What is harder for a small company is carrying the cost, which is why the private raise matters so much and why we steer smaller companies to the OTC market rather than an exchange. See can a small company go public and how big a company needs to be to go public.

Who finds it too hard?

Founders who expected the listing to solve something. In 30 years we have watched ambitious people raise the money, pay the fees and then fail to execute, and we have watched disciplined operators with modest businesses build real value in public. The difference was never the difficulty of the process. It was whether the founder did, in public, what they had already shown they could do in private. If you are not sure which you are, the going public readiness quiz is a fair place to start, and so is a first call, where we will tell you if we think it is too hard for your situation right now.

Related questions

• How do you take a company public?
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