Venture Resource Services

Going Public

There are two key benefits from going public:

1. Cost of Capital
2. Liquidity for Investors


Cost of Capital
Cost of capital is much lower for public companies than for private companies, in particular with respect to equity versus debt. In contrast, a private company not only has to give up a larger piece of itself to get the capital it needs, but also may not be able to get any money at all, and in most cases money is expensive. As many entrepreneurs can attest, it is very difficult to successfully raise money in private companies. Raising money in a public company is far easier.

Liquidity for Investors
The easier it is to sell a stock, the more liquid the investment. Stocks in public companies are far more liquid than in private companies for both legal and practical reasons. The liquid characteristic of public company’s stock motivates buyers to pay more for that stock than they would if the company was private. Other reasons to consider going public include prestige, ability to use the company’s stock as currency in mergers and acquisitions, ability to attract employees with stock options and stock grants.

Downside of listing in US
The huge burden represented by the US government regulations place disproportionately high compliance costs (in time and money) on small companies and is far the biggest reason for electing not to go public in the traditional manner. This had made European markets more attractive.

Reasons why a major European stock exchange is better than OTCBB
Many North American companies are now-days going public in Europe to avoid some of the onerous over regulations of the American stock exchanges. The US compliance costs associated with the Sarbanes-Oxley Act passed in 2002, has made it less attractive to list a company on an American stock exchange. This act could also cause high penalties for alleged corporate misconduct incasing the costs for audits. This is one of the reasons the European and Hong Kong markets have become more attractive to businesses planning to go public.

A listing on a European exchange provides access to millions of international investors that shy away from the higher American broker fees. The European markets are appealing for going public, the Frankfurt Exchange ranks third in terms of volume, behind New York and NASDAQ. Europe has a most attractive investor pool. In 2011 Deutsche Börse bought 60% of the NYSE. The European regulations are more relaxed, and there are no monthly or annual filing fees. Because there are tax advantages in Europe for holding on to a stock for a particular period of time, European investors hold on to their stocks for a longer term than American. This result in more stabile stock prices. for instance German investors get a tax break for stocks held over one year, to encourages retention of stocks, and causing less day trading. Frankfurt has a higher turnover velocity than the London exchange, and is third in terms of sheer volume, just behind New York and NASDAQ.

Are European stock exchanges better than American?
1. All Shares in Germany and Sweden are free trading. Unlike the OTCBB and Pink Sheets, the German and Swedish Stock Exchange do not restrict sale of shares held by officers, insiders and directors.

2. No Naked Short Selling in Germany. It was completely banned in Germany by mid 2010. Some critics blame short sales as a major cause of market downturns, such as the crash in 1987 and 2008. When short sellers manipulate stock prices, usually on the OTCBB and Pink Sheets, by taking naked short positions and then using a smear campaign on chat rooms to drive down the target stocks, a huge damage could be caused to the company's shareholders. The problem on the OTCBB and the Pink Sheets should not be underestimated. To many stock's listed on the OTCBB are trading in the sub-penny range.

3. Fast Time to listing. A listing on the Frankfurt, Stockholm, or Stuttgart stock exchanges would be much faster than any American listing. Time is money! Waiting six to twelve months to become listed on the OTCBB or Pink Sheets does take to much valuable time. A listing on a European stock exchange could take as little as 6 weeks from scratch.

4. No Sarbanes-Oxley. Two separate studies, one conducted by a group of executives and academics, and another by McKinsey and Co. for New York Mayor Michael Bloomberg and New York Senator Charles Schumer, have come to the same conclusion; Excessive regulation has made the U.S. stock exchanges (including the OTCBB), a less-than-favorable place to go public, and singles out the Sarbanes-Oxley Act, as the main reason. The requirements of Sarbanes-Oxley are extremely costly for listed companies. Since passage of the Sarbanes-Oxley Act, many U.S. companies have found the ongoing expense to be reason enough not delist on US Stock Exchange's.

5. The OTC Bulletin Board is not an official stock exchange. Frankfurt, Stockholm and Stuttgart stock exchange's are official stock exchange's. OTC Bulletin Board listed securities are traded by broker-dealers who negotiate directly with other brokers. OTC stocks are considered “penny stocks” by licensed brokerage firms, and SEC rules require that all purchases of such stocks must be unsolicited by their clients. This literally prohibits brokers and their firms to lawfully solicit their clients to purchase OTC securities. This limits the liquidity to develop  as del as in Europe. Unlike the OTC-markets, the German and Swedish stock exchange's are internationally recognized, just like NASDAQ or NYSE. Frankfurt Stock Exchange is now considered the most internationally accepted exchange in the world, with more than 80 countries listed.

The worldwide electronic securities trading system Xetra is the newest and most versatile stock trading platform in the world. It is one of several reasons why companies are switching to the Frankfurt Exchange. This software platform is continually scanning the market for suitable buyers and sellers faster than the New York platforms. Furthermore, it is the fastest in detecting irregular buying patters and issues "alerts" when such things are found. By end of 2010, more than 65% of the total trades were from countries outside Germany, with 22% from US investors and 24% of from UK investors.

6. The Frankfurt Stock Exchange has direct access to greater than 1/3 of the worlds investment capital. The Frankfurt Stock Exchange receives massive exposure to investor capital with more than 250 international trading institutions and more than 4,500 traders worldwide. Investors directly connected to the Frankfurt Stock Exchange represent a full 35% of the world’s investment capital. This means that a listing on the Frankfurt Stock Exchange gives companies access to greater than 1/3 of all the investment capital on the global market arena.

7. The Frankfurt Stock Exchange has the highest liquidity from all exchanges in Europe, including the London and Paris Stock Exchanges. Market liquidity and trading volume on the Frankfurt Stock Exchange comes third in the entire world.

8. Cost for a German/Swedish listing is considerably below an OTC-market listing. The Sarbanes-Oxley Act has created very high listing costs for trading on the OTC-markets. Cost for a listing on the Frankfurt Stock Exchange are small in comparison.

In conclusion Frankfurt, Stockholm and Stuttgart offers less cost, better liquidity, and greater access to capital. Call us today to discuss a listing of your company.

Call Now 1 416 444-4001, 1 313 918 1320, +46 40 644 4636