Going Public on the OTC Markets – An Open, Transparent, Financial Marketplace

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success compassFor some entrepreneurs, a way to provide liquidity for both company founders and investors is to take a company public. A public company has access to more, and often deeper, sources of capital than a private company.

There are several ways to ‘go public,’ including an Initial Public Offering (IPO), Reverse Merger or filing a Registration Statement with the Securities and Exchange Commission (SEC).

Regardless of which method you choose to go public, your company should have:

  • High growth prospects
  • An innovative product or service
  • A competitive advantage in its industry
  • The ability to meet financial audit requirements
  • Evidence of sales, contracts or well advanced in research and development efforts

wall street signTaking a company public through an IPO will require your company to meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange (NYSE)or the NASDAQ Stock Market. And for an IPO, you will need an Underwriter to manage the going public process.

IPOs can be a very costly and long, drawn-out event. Some underwriters even require company revenues of approximately $10-$20 million per year with profits around $1 million! Not only that, but management teams must demonstrate future growth rates of about 25% per year in a five- to seven-year timeframe. While there are exceptions to these requirements, there is no doubt over how much hard work entrepreneurs must put in before they can complete an IPO.

For smaller companies, there are other ways to go public. For example, if your company does not qualify for an IPO, or you just want to stay in control of the going public process while not incurring those exorbitant costs, then listing your company on the OTC Markets (OTC) may be the way to get your company public.

You can list your company on the OTC Markets through a reverse merger with an existing public company, or by filing a Registration Statement (such as Form S.1 or Form 10) with the SEC.

The OTC Markets is growing fast. Last year, the OTC Markets reported $238B in volume, compared to traditional venture capital investments at $48B .

Investors in OTC-listed companies can buy and sell shares (securities) in a manner almost identical to that of trading New York Stock Exchange (NYSE) or NASDAQ securities, through the broker of their choice (institutional, online, retail).

OTC is registered with the Securities and Exchange Commission (SEC) as a broker-dealer and as an alternative trading system, and is a member of the Financial Industry Regulatory Authority (FINRA).

stock trading puzzle piece
The OTC marketplace is home to:

  • 3,000+ ADRs and foreign ordinaries
  • 1,500+ dividend-paying companies
  • 2,300+ SEC reporting companies
  • 700+ community banks
  • 1,100+ small companies
  • 900+ large and mid-cap companies
  • Industries ranging across Renewable Energy, Telecommunications, Pharma and Bio-Tech, Utilities, Finance, Media, Resources and many more.

Some of the world’s largest companies are actually listed on the OTC, such as Russia’s Gazprom — the world’s largest producer of natural gas — and Swiss food and beverage giant Nestle. Others include: Allianz (OTCQX: AZSEY), BASF (OTCQX: BASFY), Canadian Oil Sands (COSWF), Danone (OTCQX: DANOY), Deutsche Telekom (OTCQX: DTEGY), Publicis Group (OTCQX: PUBGY) and Roche (OTCQX: RHHBY). Successful and high-growth U.S. companies include Computer Services (OTCQX: CSVI) and LiqTech International (OTCQX: LIQT).

Whichever way you decide to go public, it’s important to remember that companies do much better on a stock exchange when sharing company information in a timely manner with investors and the professional investment community.

The OTC offers several different disclosure methods such as the OTCQX International Requirements, Alternative Reporting Standards, SEC Reporting or OTC Pink Basic Guidelines. These reporting standards increase the flow of information, raise the profile of companies, improve price discovery, and increase trading and liquidity in the three OTC marketplaces: OTCQX, OTCQB and OTC Pink.

To learn more about the structure and function of the OTC Markets, click on the links below:

share prices bar chartOver the years, I’ve heard many ‘Wall Street Investment Types’ advise against listing on the OTC. They would, of course, rather wait until your young company qualifies for the NYSE or NASDAQ, because that is where they make their money.

But my experience has shown that good, solid companies who list on the OTC Markets can raise the capital they need while providing liquidity for founders, early investors, shareholders and employees with stock option plans.

Companies listing on the OTC can help investors gain greater confidence in the quality of the company’s management and financials as the market in its shares expands.

And, an OTC listing provides management with more resources to focus on growing the business, rather than meeting the high expectations and externally-imposed financial targets of a traditional IPO.

Today, OTC is home to many companies raising capital through a diverse community of brokers using technology and transparency.

OTC makes it easier for successful, small companies to enter the public markets in an effective way as they build their businesses and create more sustainable and trusted enterprises.

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Source: Jeremy’s Blog