When should a company go public?

A company should go public when three things are true at the same time: the founder has a history of executing, the plan for the next five to ten years needs capital, talent, opportunities or acquisitions the company cannot get privately, and the people who know the founder will invest $500,000 to $2 million. Revenue, profit and market conditions matter far less than founders assume, because for most private companies the route is a direct listing on the OTC market, not an IPO. If those three things are true, the best time is usually earlier than you think, because the value of being public compounds over years.

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

Why most advice on timing is about IPOs, and why that misleads founders

Search for when to go public and you will read that a company needs stable earnings, several years of double-digit growth, a strong balance sheet and a favorable market. That advice is written for a Nasdaq or NYSE IPO, where an underwriter has to sell $15 million or more of new stock to institutions in a single week. It is correct for that transaction and irrelevant to most private companies.

A direct listing sells nothing to the public on day one. The company raises capital privately from people who know the founder, registers its shares with the SEC and gets quoted on the OTC market. There is no underwriter to convince and no IPO window to catch. So the question changes from "is the market ready for us" to "are we ready to use what being public gives us." That is a question about the founder and the plan, not about earnings or the calendar. See how big a company needs to be to go public.

What signals say now is the time?

We look for the same signals on every first call. When most of them are present, the company is ready, whatever its revenue.

• You have a plan that needs the levers. You can name what you would do in the next 36 months with better access to capital, stock options that have a visible price, more opportunities, or the ability to make acquisitions with stock. If you cannot name it, you do not need to be public yet.
• You have done what you said you would do. As a private company, even a small one, you set targets and hit them. Being public amplifies execution. It does not create it.
• The people who know you will invest. Customers, suppliers, peers, former colleagues and friends who have watched you work will put in $500,000 to $2 million. We treat that as the market's reference check on the founder. If they will not, the public will not either.
• You are about to do something that is harder privately. A hiring push, an acquisition, a new market, a facility. These are the moments when public-company tools pay for themselves, and they are easier to plan for before the need is urgent.
• Your records can be audited. Organized books, a bookkeeper or controller, contracts you can find. About six weeks of preparation and eight weeks of audit is normal for an organized company.
• You have five to ten years of building ahead of you. Being public is not an exit. It is a way to build a bigger company, and the levers compound over time. A founder planning to sell in eighteen months should usually sell privately.

What signals say not yet?

We tell more founders to wait than to proceed, and the reasons are almost always the same.

• You are looking to a listing to solve a problem the business has not solved: sales that are not closing, a product that is not finished, a partner dispute.
• You expect the listing itself to raise money. It does not. The private placement before you list is the raise, and a thin shareholder base will not produce trading volume by itself.
• The people who know you best are not willing to invest.
• You cannot fund the first year of being public, which costs an early-stage OTC company about $300,000 to $500,000, from the raise or from profits.
• You are not prepared for quarterly reporting, a board with independent directors, and answering to shareholders.
• Your plan is to list, wait for the stock to go up and sell. It will not, and founders are restricted in when and how much they can sell anyway. See when you can sell your shares after going public.

None of these is permanent. A founder who hears "not yet" and fixes the reason is usually a better client a year later than one who was ready on the first call.

Is it better to go public early or late?

Earlier, if the signals above are present. A company that lists early, at a modest valuation, has years to build value with the four levers, and its public price reflects what it actually built. A company that stays private, raises round after round at higher prices and then lists is asking the public market to support a valuation it has not earned. If you are building it, it holds. If you are inflating and you list, it pops.

Our best outcome illustrates the early case. A company with about $1.5 million in revenue listed at a $3.5 million valuation, used its stock for acquisitions and recruiting over seven years, moved up to Nasdaq and was sold for $240 million in cash. Had it waited until it looked like an IPO candidate, most of that value would have been built privately, more slowly and with more dilution. That result is exceptional, not typical, but the pattern of listing early and building publicly is the one we see work.

Does revenue decide when a company should go public?

No. There is no minimum revenue to register shares with the SEC or trade on the OTC market, and more than a dozen of the 17 companies we have taken public had no revenue when they started. Revenue decides the route, not the timing. A company with $5 million or more in revenue, growing fast, in a timely sector and able to raise $15 million or more can consider an IPO. Everyone else should plan on a direct listing and an uplisting later. See can a small company go public.

Do market conditions matter?

For an IPO, yes. Underwriters pull deals when the market turns, and the IPO window has closed for months at a time in most of the last twenty years. For a direct listing, much less. Your capital comes from people who know you, and your shares start trading at whatever the market will pay on a given day, which matters little to a founder planning to hold for years. The one market condition that does matter is your own investors' appetite: when the people around you are nervous about everything, the private placement takes longer. That is a reason to start the raise earlier, not to wait.

When in the year should you start?

About a year before you want to be using the levers. A direct listing takes about ten months from the first planning work to the first trade, and the audit covers your last fiscal year, so a company that wants to be public by next fall should be preparing its books this winter. Financial statements in a registration statement go stale after a set number of days, so the audit and the filing have to be sequenced, which is part of what an adviser manages. See how long it takes to go public.

Which stage of the business is the right time?

Each stage has its own reason to be public, and we work with companies at all four.

Not sure which you are? The growth stage quiz takes two minutes.

How do I know if we are ready?

Answer the five readiness questions honestly: a plan that holds up and a team that executes; people who will invest $500,000 to $2 million; readiness for audits, reporting and a board; a strategic reason to be public; and five to ten years of fight left. If all five are yes, the time is now and the question becomes which route. If one is no, that is the thing to fix first. The going public readiness quiz walks through them, and how to take your company public covers what happens next.

Related questions

• Should I take my company public?
• How big does a company need to be to go public?
• How to know if your company is IPO-ready
• Going public vs selling to private equity
• Going public vs raising venture capital
• What are the risks of being a small public company?

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