Every entrepreneur and business promoter dreams of that future IPO and that big event where they finally go public, access the capital they need and get a ticket to cash out and become wealthy. They dream about it because the average initial public offering takes over 11 months to get filed with a whopping $3 million+ in regulatory costs that come with the process. Sobering statistics.
You no longer have to beg at Wall Street’s door, unless you like that sort of thing.
IPOs represent the ultimate goal because the investing-public – the “capital markets” – pay the most for assets and command the lowest returns (by and large).
New Rules Upend the Markets
The new securities regulations now in effect for 2021 threaten to upend the IPO market in its entirety. Under the new regulations companies can utilize the Regulation A registration exemptions to raise up to $75 million in capital conducting an IPO – without the Wall Street costs, time and dilution.
Assuming the promoter is not an idiot and chooses to raise $75 million in structured equity financing, that suggests potentially unlimited capital financing for almost any business or project a sane promoter wants to bring forward, as the realistic argument would be that $75 million in equity capital would be expected to leverage an additional $500 million in debt capital at the very least.
Capital Financing Issuance Risk & Costs Matter
A series of Monte Carlo simulations and cost estimates that suggest even debt financing is not looking as good as it used to look.
The average IPO raises around $97 million. The new relief makes the IPO route – with all its costs – look kind of unattractive to savvy financial professionals and the markets will undoubtedly come to realize the impact of these fundamentals pretty quickly.