Small companies may go public for several reasons. Some may have shareholders who want to monetize their interests, such as founding partners who want to cash in on a portion or all of their stakes, and some may want to raise money for growth.
Notwithstanding the past few years, and depending on the specific business, small-business owners typically can get a higher value for their company in the public markets than in the private markets, Duran says.
Experts say a company considering the public markets should be sure to have:
- A minimum of $500 million to $1.5 billion in annual revenue.
- Two to three quarters of profitability.
- A compelling growth story, and a compelling reason for investors to buy the firm's stock.
- A specific reason to want the money and a clear reason on how the money will be used.
- A IPO deal seeking at least $50 million to $100 million.
- A seasoned management team, including a chief financial officer experienced at public offerings, and strong board of directors.
- Underwriters experienced in a firm's specific industry.
Beyond that a company should have "enough investor interest to create interest in the stock," Duran says."You need to be large enough and have a sustainable enough revenue stream to take this money to invest in future growth rather than just sustain the business you have. If the business is losing money and has no track for growth, no one will invest," Duran says. Duran says businesses should not go public if:
- It is too reliant on any one person.
- The owner doesn't have a clear understanding of how the money will be invested.
- There is no clear plan for growth.
- The owner doesn't understand the increased regulatory environment and is not comfortable having a much more demanding shareholder.
- The owner doesn't need the money.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV