What to Go Public But Can’t: This Method is Helping Growth-Stage Concerns Experience a Liquidity Event

Without a $500 million valuation any business concern looking to go public is being forced to cool their jets. Numerous systematic changes, driven primarily by the consolidation of institutional investors and the subsequent emergence of multi-billion dollar mutual funds, has resulted in the stock market no longer supporting growth-stage companies. According to those who have studied the situation on average a start-up is currently looking at a 10-year gestation period before it can expect to go public.

So what should you do if you’re looking to monetize some of your hard work and appease early round investors?

First off if you’re a profitable service business, which by the way have an operating margin anywhere from 25% to 45%, why take on the hassle. There are many private routes you can travel (late stage investors, private equity, and strategic investments from corporations) which don’t come with the procedural strings [read headache] of public reporting attached.

If this isn’t you then keep your shoulder to the grindstone and look at listing an offering on a private capital market. Seek out companies such as SecondMarket and SharePost, which were designed to provide liquidity for shareholders in advance of an IPO.

How do you know the time is right? According to SecondMarket there is no clear-cut formula, however, certain indicators, such as the age of the startup (4 to 5-years), demonstration of significant market traction, and annual revenues of at least $20 million are good indicators that the pool of sophisticated investment concerns would step up to the plate.

Does this heightened barrier serve the best interest of the global economy?

Let’s not forget the disclaimer: None of this material is intended to be legal advice. A competent attorney with extensive SEC experience should be consulted.

And the attribution: The above post was inspired by the Inc Magazine article Thinking of Going Public?