subject: Taking A Company Public - Take A Franchise Public - S1 Lawyers - And Public Executions [print this page] So you're going public, congratulations! What is your intent? Is this your exit strategy? Are you trying to create fast capital to bale? Are you looking to pump and dump? If not, keep in mind those that will be coming out of the woodwork to help you are looking for all of the above and they see your company as the mechanism in which they'll use to facilitate their wealth creation.
Watch your back. Before you decide to go public I have an idea. It's midsummer here in the north east and around 100 degrees in direct sunlight. Wrap yourself in plastic then put on two sweat suits and a ski jacket and jump rope outside for 20 minutes. What will happen is your body will eventually shut down because too much is going on at once. Your heart is pounding, pulse is racing, sweat pouring, you're dizzy from excessive heat, you're dehydrated, you're skin is flushed, you're week in the knees and you'll most likely collapse regardless of how good of shape you may think you're in.
Now put your company in the same context. When you go public and there are too many people involved in the process keep in mind the first thing to go is a little equity here, some shares there, you're buddy from college, your mom, dad, employees, consultants, attorneys, accountants and anyone and everyone involved in this transaction. Before you know it your company is picked to pieces and it shrivels up and dies before the capitalization can begin. It's like picking the same scab on your elbow over and over again. How else can I make my point? Equity in your company is something that should be guarded and protected like you would look after a suitcase of cash in your hotel room. You need to watch out for it, protect it, and hide it from predators.
I had an S1 attorney sit down with me to go over a project I was bringing her in on. She was so calm and I got a great feeling about her. She gave me the whole religious spiel and between that, her grandmotherly appearance and the way she described her professional and educational pedigree, I fell for the con. She told me that she'd only require 2% to 3% equity in the project because of it's profitability and time in business, I told this to my client and guess what? The contract read 10% equity and $10,000 for a PPM authoring even though we didn't need a PPM.
That wasn't the only surprise. She had no experience in direct s1 filings though she claimed to have an expansive pedigree. Her MO was to confuse the client to the point that they would get angry with everyone but her and in the confusion she would continuously get away Scott free. She had convinced the clients that what they really wanted was a DPO, not an IPO and that it was impossible to facilitate a selling shareholder offering to have the investors create the market with free trading shares once the company went public. With the original concept of the IPO this was absolutely possible but she had confused the project so much that the clients, now insisting on the results of an IPO with the mechanism of a DPO and they were blaming me and the other consultants for talking 'trash' about this attorney when we broached the subject of changing out the attorney for someone more well versed in actually facilitating IPOs. It was a spectacular twist of loyalties.
Here is my point. This attorney ended up negotiating 5% of the company. That is 5% of the entire company with a valuation of around 10 million dollars. She had no experience and no way to actually fulfill her end of the contract yet she had paperwork and shares for 5% of an existing entity and she was a sham. The clients also gave equity to their local attorney and CPA which made up another 5%. Now they are at 10% of the company. In the end, I could see that this client just wasn't going to listen to reason and I ended up stepping away from the deal as it was too painful to watch this promising corporation self-destruct by following the wrong people.
Are you going public? Taking your company public can expand your business faster than you could ever imagine as long as it's not a micromanaged bureaucratic cesspool. Bring in one or two consultants for a pre negotiated total amount of shares and retainer and whatever they do in the form of service facilitation will come from their bank of shares. Protect the remaining shares and don't give them up to anyone.
by: James Scott.
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