Private vs Public Equity
Understanding a private equity opportunity can be derived by comparison to a public stock. IPO tends to define a company or stock that has done an initial public offering, becoming a publicly trading company offering public stock.
Often, it is easier to invest in a publicly traded firm than a privately-held company. But this does not equate to major returns on investment.
Access to public companies selling shares is widespread, so it is not surprising that opportunities to buy public stocks don’t often provide any tremendous upside or success potential, since broader sales and buying to the general public is far from a special case. By the time shares are available to the general public, most of the dramatic gains and enrichment from growth and success has gone to the private owners or early investors, who acquired shares at dramatically lower numbers than market prices.
A public company rarely acts boldly or announces a major or dramatic deal or big increase in performance, thus most trading stocks show leveled numbers. They miss out on long-term value-creating opportunities, since they are focused on meeting very conservative goals, again, since the fortune was made earlier on.
While a private stock jumping into the IPO market may historically confirm an early buyer saw an increase in what they paid to what the market values the company, even 20 times higher or more, a trading stock rarely shows a jump of that nature.
Hence, acquiring shares in a private company that is positioned to eventually be trading, is a move aimed at a higher return on valuation. This can be called, pre-IPO stock.
A pre-IPO purchase or early round acquisition, means a significantly lower cost basis, thus much higher return potential. The size of the investment means the price paid for shares in a pre-IPO placement is usually lower than the prospective IPO price.
Pricing is contingent on the company eventually going IPO, since it is not IPO yet, and so placements, in a sense, compensate for that by offering a price per share or lot of shares that is much lower than it is expected to be at IPO.
Private Placement-A private placement is a capital raising event that involves the sale of securities to a relatively small number of select investors. Perhaps the best way to experience a higher return is to get in early with a company that appears to be on track to be IPO. The benefits of getting in early on a stock that may “pop” includes the ability to ride the wave of public value appreciation often following IPO.
Certain Firm Protocols
We believe that companies we focus on must meet certain criteria, thus satisfy protocols. While our system of analysis, sources and approaches can’t be fully shared given they are proprietary and we are a private entity, we do share some key components for consideration. We like companies with management teams not looking to sell off the company and retire, thus committed to the haul forward, are willing to hire and use auditors, lawyers, advisors, are motivated for business success like building sales and creating profits equally motivated to create long term exiting by going through an IPO process, thus becoming public.
It is not unusual for a business to require funding. It is rare for a company to fund future plans, future growth and remain competitive strictly from cash flow. It’s also rare for a company to advance all its business goals simply from capital infusion from the handful of owners. Capital funding entails engaging with investors and financial firms, being respectful of compliance because of regulatory considerations, and raising capital in a strategic manner, with goals and other aspects.
Notwithstanding periodic negative financial or economic news, the USA remains the premier place for capital funding. Besides steady markets, legal compliance, information distribution, the legal system helps to ensure companies that are funded are less likely or prone to ignore the rights and obligations that relate to operations, investors, filings, etc. Thus we focus on US companies.
Also the exit strategy of going public— while going public exists in different countries– still remains more attractive; going public in the USA greatly surpasses others in terms of benefits and valuation compared to those foreign trading exchanges and methods to become public (or at least, perception).
Our team inclusive of advisors, has many years’ experience with CEOs of public companies, the management teams of financial groups and extensive travel including New York, Los Angeles, London, Switzerland, etc., etc. offering a wide breadth of relationships that tie into the experience and the background to help a target company along the way to IPO.
We help companies understand stock becomes a tool for the company to get certain things done. For example buying another company, doing a joint venture with another company, compensating employees, giving an incentive to employees, and interacting with third party contractors all may involve in some way common stock of the company.
The process we touch upon in varying degrees is a combination of efforts: conference calls, meetings, due diligence, working with the CEO to help guide the company business materials, helping in giving advice, and making introductions.
It is almost impossible to undertake all of these goals without interacting with third parties. We recommend third parties carefully selected and contracts are done. The third parties may include an auditing firm and or a transfer agency.
Our team wants the company management to freely explore and operate in their industry, but we wish to lend ourselves to the additional goal of building valuation, and staying on a track to go IPO. Many equity firms take positions and immediately ignore the core principles and mission of the target company even becoming an adversary, but we have found from experienced team members, being firmly present to help guide and advise the management team enhances overall performance not just the relationship.