Ten Tips For Entrepreneurs Who Decide to Go Public [Guest Post]
Guest Post By: Robert F. LicopoliFirst a disclaimer, this article is written for entrepreneurs by an entrepreneur. I’m not a lawyer, accountant, or a financial services expert. I’m someone who is passionate about building a successful business and wrote this article about my personal experiences. In no way is this article meant to be a legal advice or a thorough description of 360 Sports, Inc.
360 Sports, Inc. was one of the first companies to qualify as a public company by the SEC under Regulation A+ Tier 1. When Reg A+ became effective, I made the decision to scrap plans to file an S-1 registration statement and file as a Reg A+ Tier 1, instead. It was challenging, but we succeeded.
The following 10 tips are based on the lessons I learned along the way. Lessons I wish I had known ahead of time. I took the time to write this because I feel it might help other entrepreneurs who are considering going public as well:
1) Know the purpose for becoming a public company.
Your purpose for your decision must be crystal clear. For example, the purpose for taking 360 Sports, Inc. public was to scale our growth model quickly and efficiently while providing our investors with the possibility of liquidity for their investments with shares that could be traded on a qualified exchange someday.
2) Learn the rules.
The rules governing qualification and compliance are complicated but worth the while to learn. It took us months to obtain a working knowledge of the rules and if we didn’t re-review them constantly we would lose our grasp of their meaning and purpose and as a result, their applicability. Additionally, there were significant amount of additional information released on a regular basis. The rules extend beyond the SEC and include other organizations such as FINRA, DTC, NASAA, NACB, etc. If you would like to apply for qualification as a Reg A+ company, I recommend starting by reading the instructions on the Reg A+ application, and the references it contains to the regulations of the other organizations. The information the SEC included in the application itself is extremely helpful.
3) Know the process.
No lawyer, accountant, or any other expert could provide me with the entire picture of requirements involved with the process of going public, especially in regard to cost. They only provided me with their retainer fee and details within their own silo of expertise. For example, I had no idea DTC eligibility was a requirement until it came time to select a transfer agent and that it would be an additional 5 figure cost. For a startup/emerging growth company, that is a lot of money.
4) DIY as much as you can.
From the start, we recognized that we didn’t have the capital to become qualified as a company that could raise capital – from the public. For us, it felt like a classic catch 22 situation. So we rolled up our sleeves and dug into the application, the associated rules and regulations, and completed as much as we could on our own. The good news is that the SEC revised Regulation A in a manner that allows business people, who are not legal or accounting licensed experts, to complete the application. Also, the SEC is a big believer in the use of “Plain English”, not language that is specialized for a specific field, so this was perfect for me!
5) Call the SEC.
The SEC examiners were extremely helpful to my questions about the meaning and applicability of the rules.
The idea of voluntarily calling the SEC for questions I had with the Reg A+ application immediately made me sweat; however, I found the SEC examiners to be tolerant of my questions about the process. In fact, the SEC was consistently interested in learning about my questions, and providing me with the answers and explanations I needed to be compliant. Not advice – just feedback.
6) Attorneys, Accountants, and Retainers.
In my experience I have learned that when you hire a lawyer and accountant, it’s important to make sure you require the projected total cost to complete your project, not just an open-ended retainer fee agreement. Typically, attorneys and accountants ask for a retainer of $50k and $25k respectively, but then when it comes down to completing all the tasks they ask for twice as much and more. As an entrepreneur, if you are not prepared for the open-ended retainers, it can put you out of business if the work never is completed.
In a previous experience I went through two cycles of paying legal retainer fees and even more for paying accountants for the audits. The timing of the legal work didn’t match the timing of the audits and I spent unnecessary fees during this process and we never completed the documents necessary to even file the registration statement. If going Tier 1 or S-1, ask the groups to work together as a way to save on both time and money.
7) Investment bankers won’t offer any guarantees.
I’ve found that regardless of how much you do on your own, the fee investment bankers charge remains the same. For example, while interviewing several IB firms we informed them that we had already qualified as a Reg A+ public company. Regardless, they weren’t willing to negotiate down the upfront cost of their services even though the labor was all but eliminated. As one of the first as Reg A+ they truly did not know what Reg A+ was. My experience is that this lack of knowledge among many IB firms still exists to this day.
8) Be prepared to educate people of all professional backgrounds exactly what Reg A+ is.
During my journey to raise capital, it has been my experience that many business experts such as investment bankers, accountants, financial investment experts, and attorneys, do not know about Reg A+. You will probably have to do more work educating people on what it means to be a qualified company under Reg A+ than you might anticipate. I have found informing people to be an uphill battle and preparing ahead of time to explain this information has helped me build credibility with key relationships. I feel like the “Coach of Silicone Alley”.
9) Listing on a qualified exchange isn’t hitting the lottery.
Becoming a public company is one thing, but being listed on an exchange is another. Having a secondary market may most likely lead to a death spiral for smaller companies and without an underwriter willing to buy back your shares if there are no other buyers you can sink very quickly.
For example, after we qualified, we all asked, “Now what?” We still didn’t have an investment banker and it wasn’t for lack of trying or lack of offers, but we just didn’t trust their role in the post-qualification process. I just didn’t see the long-term value.
The sad fact is the holders of the stock in the secondary market are generally not investing in your company because they love your product. History shows they are after a quick profit.
We took the stance that it may be wiser to grow our company organically after qualification. The real value happens if the public gains an interest in your stock because they do like your product. With your customer base as your shareholders there won’t be a mad dash to make a profit on your stock.
10) Use Investor Relation firms to enhance your own marketing — not do it for you.
Unless you have a large budget dedicated to marketing, do your own investor relations. Thanks to social media, marketing your own company has never been easier as long as you’re willing to learn and do the work – two characteristics most entrepreneurs have in common.
IR (Investor Relations) firms rely on retainers too and use your money much in the same was as lawyers, accountants and investment banking firms do. One of the primary reasons IR firms ask for their retainer fees paid upfront and in full is because they know the failure rate of new companies is likely. In all honestly, they don’t expect your company to be any different. Like other service providers, IR firms want their payment up front and do not guarantee profitable results.
In closing, our plan to grow quickly has become relative to our long-term strategy; however, our efficiency is proving to be the secret to our success while maintaining liquidity for our Reg A+ investors.
Almost two years later, we are one of the very few Reg A+ qualified companies still in business more than a year after qualifying. Our plan continues to grow our investment base, organically.
About Robert F. Licopoli
Robert F. Licopoli is the founder and CEO of 360 Sports, Inc. 360 Sports, Inc. is a Delaware C Corporation formed in 2016 and qualified by the SEC as a public company in April 2016.
Robert’s background spans three decades in construction management and real estate development. In addition, Robert had a successful athletic career as a semi-professional athlete in both football and rugby, which eventually led to launching a career in sports management. Robert’s football career began at Millersville University and continued on to play for Team USA Football in Europe. His rugby career started in college as well and eventually landed him a roster spot in the Super League with Old Blue Rugby, one of the premier rugby teams in the United States. While playing rugby with Old Blue, the late Bill Campbell, who was known as the “Coach of Silicon Valley” and founder of Old Blue, an Apple Board Member and well-known mentor to Steve Jobs, instilled confidence in Robert as a mentor as well. The lessons Robert learned from Campbell led to the creation of 360 Sports, Inc. More information is found at www.360sportsinc.com.
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