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The True Costs of Being Public Are Less Than You Think

Since the mid-1990’s, the number of listed US public companies has been declining. We always hear the same two reasons. First, the rise of venture capital and private equity has made it easier for companies to stay private. Second, the cost of being public is too prohibitive.

Since the mid-1990’s, the number of listed US public companies has been declining. We always hear the same two reasons. First, the rise of venture capital and private equity has made it easier for companies to stay private. Second, the cost of being public is too prohibitive.

There are 7,500 companies sub $100 million market cap that trade on US markets (Nasdaq, NYSE, OTC). Most articles state (and most people believe) that being public adds $2-3 million onto a companies cost structure. Even $2 million of additional costs per year would make it prohibitive for almost any small company to be public. It amazes me how many people believe these numbers. I think this misperception alone has hurt the amount of companies desiring to go public when they are small. It’s time to set the record straight.

What is the real number? What is the true cost for a NYSE listed sub $100 million market cap company to be public?

I asked three of them. Here is a blended average of their responses:

Auditor Fees: $88,000
Broadridge: $19,000 (annual meeting NOBO reports, proxy printing and mailing)
Legal: $51,000 
Transfer Agent: $11,000
NYSE: $110,000
SEC EDGAR filings/News Release Distribution: $15,000

The above expenses are the public company mandatory expenses that a private company would not incur. I did not include investor relations expenses since they are not mandatory. I also don’t include board of director compensation (and D&O insurance which can be $50,000 – 100,000 per year) as an expense since meaningfully sized private companies would have this expense as well.

The total additional cost of being public for a NYSE listed sub-$100 million market cap is $300,000 per year. The total additional cost for an SEC filing microcap on the OTC Markets is likely $150,000 per year. This is far less than the $2-3 million everyone thinks is true.

“Ok, good info Ian, but it’s easier to stay private and raise money from venture capitalists, search funds, and private equity.”

Yes, it has never been easier to raise money as a private company. But what are the terms of the capital? Have you looked at the term sheets from most venture capital firms or private equity firms? Preferred shares, multiple ratchets if you don’t hit your numbers. They have you by the throat. This is why every rich person loves venture capital – they couldn’t get away with these types of term sheets in public markets. They win if you win and they win if you lose (they get your company). At least with public markets you’re mainly raising capital through selling common equity. It’s cleaner. It’s simpler.

I’m not saying being a small public company is for everyone, quite the contrary, but it isn’t as bad as what you’ve been told. The way we bring back small companies desiring to go public is to attack these misguided misperceptions with facts.

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