Recently I spoke to one of the founders of a medical device company who was looking to go public in order to fund the development and regulatory approvals for their new products. Assuming that the company accurately projects their capital needs at $4 million I thought it would be a useful exercise to look at the impact of the decision to go public on the company’s burn rate.
To begin with I looked at a study published by PwC in 2014 –
According to PwC estimates:
How much can the costs of going public add up to?
Underwriter costs for an IPO – up to 10% of the proceeds.
Legal, audit and accounting costs – from $200K to $500K for a smaller offering
Marketing and road show costs ?
Miscellaneous costs (eg. printing costs, filing and transfer agent fees)?
What’s more many of these additional costs are ongoing.
Based on this analysis at least half of the cost is directly attributable to going public too early in the life of the company. Given that this is a medical device company, the cost of foregone SR&ED refunds could easily exceed the IPO and maintenance costs.
Ideally going public should be seen as a possible exit for Series A or Series B investors instead of a strategy for raising money for a development stage company.