Going public has traditionally been an important event in the lifecycle of a company. The metrics above raise the question as to whether or not nano-cap and microcap companies should go public. So, what are the benefits of being a public company?
The benefits of being a public company typically include:
- obtaining a source of permanent capital, usually at a cost lower than other alternatives
- providing early stage investors an exit, allowing them to reallocate their capital and talent to other ventures
- enabling employees who have accepted compensation in the form of options and stock grants an opportunity to monetize their equity by selling into the stock market
- facilitating attracting employee talent by offering equity-based compensation that can be monetized through the stock market
- providing a stock “currency” that can be used for acquisitions
While these benefits are in theory available to nano-cap and microcap companies, without stock trading liquidity these benefits are not available to them as a practical matter. For more information on the topic of the lack of stock trading liquidity, see the article relating to how Dodd-Frank crushed stock trading liquidity for small cap stocks.
In addition to the boot of Dodd-Frank on the throats of small cap companies, nano-cap and microcap companies also face the following unique challenges that negatively impact their stock trading liquidity.
- lack of institutional investors
- “toxic” financing is often the only financing available
- lack of “sell side” research coverage
- ineffective market awareness programs to increase stock trading liquidity
Subsequent articles will explain why these challenges exist for nano-cap and microcap companies and what can be done to mitigate them.
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