An earlier article illuminated the trend that the number of public companies in the US is decreasing and the amount of capital raised in recent years through the public markets is 26% less than that raised through the private markets.

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:

  1. obtaining a source of permanent capital, usually at a cost lower than other alternatives
  2. providing early stage investors an exit, allowing them to reallocate their capital and talent to other ventures
  3. 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
  4. facilitating attracting employee talent by offering equity-based compensation that can be monetized through the stock market
  5. 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.

  1. lack of institutional investors
  2. “toxic” financing is often the only financing available
  3. lack of “sell side” research coverage
  4. 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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