Can A Small Business Go Public?

Josh (00:00:03) - Good day, fellow dealmakers. We got seven minutes on the clock today. We're going to talk about Microcap IPOs with my friend Peter. So Peter welcome to the show. Please tell us what the heck is a Microcap IPO.

Peter (00:00:17) - Thanks for having me, Josh. Great. Great to be here and to reconnect with you and with the audience. So what is a Micro-cap IPO? Everybody thinks you need to be a unicorn. Be some giant tech company backed by private equity and venture capital. And here's a reality that's just not true. So the first thing we can do is debunk the myth that you need to be a unicorn to do an IPO. That really started back when the dotcom days were, you know, a problem. And when that.com went boom and bust, there was a a orientation that if it's too small of a company, you shouldn't go public. Well, there's no reality to that. That just became a business practice as opposed to, you know, a regulatory hurdle. So what is a micro-cap IPO by definition? It's a $50 million market cap as a floor up to a $300 million market cap.

Peter (00:01:13) - And so that's the size of a micro-cap company. And by definition, then what is a market cap? It's the number of shares issued and outstanding multiplied by the current price of the stock. So if you are at a $50 million or above valuation on your capital structure, then you're eligible to go public on Nasdaq, New York Stock Exchange and now the Chicago Board of Exchange. So most entrepreneurs don't know that this is possible. And so part of our opportunity here is to educate entrepreneurs that you can access the capital markets, bring in transformational capital, and grow your company as an alternative to private equity into venture capital.

Josh (00:02:02) - Yeah. Brilliant. All right. So we're talking you and I are having a conversation with one of our friends. He runs a construction company or something like that. It's a private company and we give them that market cap, you know, number of shares times price per share. And he goes, how do I know what my shares are worth? I don't know what my price per share is.

Josh (00:02:20) - So like putting that in the world of a private company, how how would we have a conversation with him about that to see if his company is too big or too small to go public?

Peter (00:02:30) - Yeah, it's a great question, and one that we often face because private companies that would be funded internally or funded by their own friends, family, right, so on and so on, don't have what we would call a mark to market and a mark to market would just be that there was an outside price paid by an investor that would then create the value at the last pricing of the shares. And there you would have, you know, a multiple. Without that, then you would look at a valuation. And valuations can be done in different ways. You don't need to go spend a ton of money and bringing a third party expert that's going to charge you, you know, gazillion dollars to tell you what you really already know. And most of that is based upon the growth and the projections of the company.

Peter (00:03:11) - So, you know, a discounted cash flow model is the easiest way to do this. You take your historical financials, you put together some assumptions, and then you look forward to see what the company would look like in the next 12, 24, 36 months. From that, you can deduce what the size of the company and the valuation should be. And it's fairly straightforward. It really you know, Wall Street is built around smoke and mirrors, right? You and I can debunk all of that and just let the entrepreneurs know that there's a fairly straightforward way to determine your valuation with a range. And as long as you're above that range of 50 as your floor, then you really are a have that option and you would be available to pursue a potential listing as a microcap company.

Josh (00:03:57) - Yeah. Very cool. So tell us a little bit about, you know, that construction company comes to you and they're looking to access the the capital markets and they come to you and they're asking what does that even look like? Because you advise people on the process and, and you work with them on making that journey.

Josh (00:04:12) - So they come to you walk me through how you serve them.

Peter (00:04:17) - Yeah. So first off, you know, the journey is one that I've done myself. So I'm able to talk about it several times. And I've advised many, many companies down this process. I've also written a book called The Entrepreneurs IPO which spells out step by step how to do this for people that just want to get an education and understanding. The truth is, it's fairly complex. There are a lot of moving parts and a lot of variables. We tell companies you want to look 12, 18, 24 months out in advance. To begin the education process. The preparation process way before you even consider executing on your IPO. So it really is coming first with a commitment to want to pursue the IPO and then to be able to plan 12, 18, 24 months out.

Josh (00:05:05) - Got it. So what are some of the things that they need to do in that 18, you know, 12, 18, 24 months to prepare for IPO?

Peter (00:05:14) - Yeah.

Peter (00:05:15) - It's there a number. It starts with forming your team. Right. So yourself, you know, bringing in an advisor. That's really our core business. have you C-suite team, your CEO. If you have a CFO, great. If not, it's not critical to get started. Part of the preparation is to identify all the areas that you're deficient in, that you would need to satisfy as you get further on down the road. And that would include a financial audit. That's probably the longest lead time item. Most private companies aren't audited by an outside third party, and that takes time. Get your books and records in place. You know, get them organized, you know, to bring in an outsider. So typically there is a kind of a period of, of adjusting, the books and the records just to be able to get ready for the audit. And then there's an audit process that will lead into legal, that will lead into investment banking. Those are all things that we can help with.

Peter (00:06:07) - But if anybody's considering this route, start with your books and records and start talking with, you know, your accountant and and other outside third party independent auditors to determine the shape and the status of your books, to be able to go through the process of a full financial audit.

Josh (00:06:24) - Yeah. So you you mentioned you have a book.

Josh (00:06:27) - Called The Entrepreneur's IPO, which is really cool. But if someone's looking to read that book, connect with you and maybe ask some questions about the process or maybe get your help doing that, what's a good place for people to connect with you buy your book and, maybe work with you.

Peter (00:06:43) - So connecting is easy. Look, I'm a I'm an entrepreneur. I'm passionate about working with entrepreneurs. I'm very active on LinkedIn. I put a lot of content out around this. So you can find me on LinkedIn. the second is our company website, which is Exchange Listing llc.com. All the information about going public and what we do as an advisor. And the book is for sale on Amazon if you'd like to buy it.

Josh (00:07:04) - Very cool. We did that in seven minutes or less. fellow dealmakers, as always, reach out to our guests and say thanks for being on the show. All their contact information will be in the show notes by their books. Give it a great review, five star review, and let them know that you heard him here on the deal Scout. If you have a deal that you'd like to talk about here on the show in the seven minute format, head on over to the deal scout.com, fill out a quick form, maybe talk to you on the next episode. Till then. See you everybody.