Founder's guide
How to take your company public
The ways to do it, the steps, what it costs, how long it takes, and how to tell if your company is ready. Written for founders of growing private companies, not for companies that already have a Wall Street bank.
To take your company public, you raise capital privately from people who know you, have your financial statements audited, file a registration statement with the SEC, and have a market maker arrange for your shares to be quoted. For most private companies that is a direct listing on the OTC market, with no investment bank, taking about ten months and $300,000 to $500,000 in third-party costs. An IPO only makes sense for a company that can realistically raise $15 million or more.
Joel Arberman, Meraki Partners. Based on 17 companies taken public: 11 by direct listing, 4 by reverse merger and 2 by IPO.
Can I take my company public?
Probably, if you are asking the question seriously. There is no minimum revenue, profit or size to register shares with the SEC and trade on the OTC market. More than a dozen of the 17 companies we have taken public had no revenue when they started. Nasdaq and the NYSE have financial standards, which is why most smaller companies list on the OTC market first and move up later.
The real test is the founder. Being public amplifies effort. It does not fix a business that would not succeed as a private company. See can a small company go public and how big a company needs to be to go public.
What does it mean to take your company public?
It means your company registers its shares with the SEC, starts filing public reports, and lets anyone buy and sell its stock on a public market. In return for that transparency, the company gets four levers private companies don't have: better access to capital, the ability to attract talent with stock options that have a visible price, more opportunities, and the use of its stock and its access to capital for acquisitions.
Going public is not a financing event. Money is one of the four levers, and the disclosure that comes with being public amplifies all four.
What are the ways to take a company public?
There are four main routes: a direct listing, a reverse merger, an IPO and, in Canada, a Capital Pool Company. Which one fits depends on how much you can raise, how fast you need to be public, and what kind of business you run. For most growing private companies the answer is a direct listing.
Direct listing
The company raises capital privately, gets audited, registers its own shares with the SEC and is quoted on the OTC market. No underwriter and no shell. Our default path: 11 of our 17 listings.
About 10 months · $300,000 to $500,000
Reverse merger
The private company merges into a company that is already public. Faster, but shells can carry hidden liabilities and the shell's shareholders keep part of the company. We usually steer real businesses away from them.
About 6 months · $400,000 to $600,000 plus shell equity
IPO
An underwriter sells new shares to the public and the stock lists on Nasdaq or the NYSE. Fits a company with $5 million or more in revenue, fast growth, a timely sector and a realistic raise of $15 million or more.
7 to 8 months · higher costs plus 6% to 8% underwriting
Canadian Capital Pool Company
A regulated TSX Venture shell, which avoids most of the risks of US shells. Fits a company with capital lined up that needs to be public fast, makes minority investments, or is in natural resources.
Faster than a direct listing
Not sure which applies to you? The path to public quiz gives you a recommendation in a few minutes. For more detail, see the paths to going public.
How do you take a company public, step by step?
For a direct listing, the process runs in seven steps, several of which overlap: set the strategy and the team, get the company in shape, raise capital privately, prepare the accounting and the audit, file the registration statement, clear SEC review, and get quoted on the OTC market.
Set the strategy and the team
Decide why you want to be public and which of the four levers you will use. Engage a going-public adviser, a securities lawyer and a PCAOB-registered auditor. About 3 to 5 weeks.
Get the company in shape
Convert to a C corporation if you aren't one, clean up the cap table and contracts, and plan for a board with independent directors.
Raise capital privately
Typically $500,000 to $2 million from about 50 people who know you, through a private placement. It pays for going public, the first year of being public and growth, and it gives you your first shareholders. See raising before you go public.
Prepare the accounting and the audit
About 6 weeks to prepare the books for an organized company, then about 8 weeks for the audit. See do I need audited financials.
File the registration statement
A Form S-1 or Form 10, drafted in 3 to 4 weeks alongside the audit. See S-1 vs Form 10.
Clear SEC review
First comments arrive in about 30 days. The full comment and amendment cycle usually takes 60 to 90 days.
Get quoted and start trading
A market maker files Form 211 with FINRA (30 to 60 days) and the shares are quoted on the OTC market. Then the real work starts: reporting, investor relations and executing the plan. See the first 100 days.
How much does it cost to take your company public?
Third-party costs for a direct listing typically run $300,000 to $500,000, paid from the private placement rather than by the founder personally. A reverse merger typically costs $400,000 to $600,000 plus the equity the shell's shareholders keep. An IPO costs more and adds underwriting fees of 6% to 8% of the raise. Staying public costs an early-stage OTC company about $300,000 to $500,000 a year.
| Route | Typical time | Typical third-party cost | Investment bank? |
|---|---|---|---|
| Direct listing | About 10 months | $300,000 to $500,000 | No |
| Reverse merger | About 6 months | $400,000 to $600,000 plus shell equity | No |
| IPO | 7 to 8 months | Higher, plus 6% to 8% of the raise | Yes, raising $15 million or more |
See how much a direct listing costs and the ongoing costs of being public.
How long does it take to take a company public?
About six months by reverse merger, seven to eight months by IPO and about ten months by direct listing. The capital raise runs alongside the process, not before it. The biggest variable is the company itself: how focused management is and how ready the financial records are. See how long it takes to go public.
How do I make my company publicly traded?
Once the SEC declares your registration effective, a market maker (a FINRA member firm) files Form 211 so your shares can be quoted, and the company applies to an OTC Markets tier such as OTCQB. From then on anyone can buy and sell your shares. Trading volume doesn't come automatically: it comes as the company builds a shareholder base, reports results and delivers on its plan. See the requirements to list on OTCQB.
Do I need an investment bank to take my company public?
No. 15 of the 17 companies we have taken public did it without an underwriter, by direct listing or reverse merger. You need an investment bank for a US IPO on Nasdaq or the NYSE. See going public without an investment bank.
Will I keep control of my company?
In a direct listing, usually yes. The private placement typically sells a minority stake, and a founder who owns 100% going in typically owns about 70% to 80% when the company lists. What changes is accountability: you answer to shareholders and a board, and you report publicly. See keeping control after going public.
How do I know if my company is ready to go public?
Answer five questions honestly:
- Do we have a plan that holds up, and a team with a history of doing what it says?
- Will the people who know us invest $500,000 to $2 million?
- Are we ready for audits, quarterly reporting and a board with independent directors?
- Do we have a strategic reason to be public: capital, talent, opportunities or acquisitions?
- Do we have five to ten years of fight left to build something bigger than we could privately?
If the answers are yes, going public is worth a serious look. If not, strengthen the private company first. The going public readiness quiz takes about 2 minutes. For the decision itself, see should I take my company public and when a company should go public.
What does going public look like when it works?
A company with about $1.5 million in revenue listed at a $3.5 million valuation. Over seven years as a public company it made acquisitions, moved up to Nasdaq and was sold for $240 million in cash. Our best outcome, not a typical one.
A company that set out to raise $1 million on its path to public raised $3.3 million, then another $7 million.
A residential mortgage brokerage made its stock option plan its main recruiting tool and built a team of more than 120 people in its first full year as a public company.
Who should not take their company public?
We say no when the founder has no history of executing, even as a private company; when the people who know the founder won't invest; when the plan doesn't hold up; or when the founder is looking to a listing to solve problems the business hasn't solved. Often the honest answer on a first call is that going public isn't right yet, and we say so.
Related questions
- Should I take my company public?
- Can a small company go public?
- How is my company valued when it goes public?
- Should I list on the OTC market or in Canada?
- What are the risks of being a small public company?
- How hard is it to take a company public?
- How to go public on the OTC market, step by step
- What are the downsides of going public?
Is going public right for your company? Answer 8 questions and get a straight answer in about 2 minutes. Take the free quiz
Talk to us about taking your company public
Tell us where you are, wherever your company is based, and we’ll set up a first conversation about whether going public belongs in your plan, which path fits and what it would take. If it isn’t right for you, we’ll say so.