The OTC Markets: Supporting Early and Later Stage Public Companies

By Jeremy P. Feakins


seed money

“If we want growing companies to go public, we need our public markets to be a competitive source of growth capital.” – Cromwell Coulson, CEO of OTC Markets


I am a big fan of the OTC Markets and I’ve posted a number of blogs and articles about it. I believe the OTC Markets is an exciting financial marketplace for businesses of all sizes. In fact, I have just listed my current venture on the OTCQB. But, it’s surprising to me that many entrepreneurs and business owners don’t know enough about this professional financial marketplace.

Most, if not all, companies need capital in order to advance their business. Going public is a way to find that growth capital. Investors are offered shares in a company that at some point in the future will be able to be sold when the business reaches success and a market develops for those company shares. That can make a company very attractive for an investment by angel investors and venture capital.

In quite a few instances, I’ve seen management of companies large and small think of a public company as one that is listed on the NASDAQ or the New York Stock Exchange (NYSE). What if your company is too small for those ‘big markets’? (You can read about the listing for requirements for NASDAQ here).

OTC Markets dollarsOTC Markets lists companies of all sizes and offers significantly better value for money than its larger counterparts.  With three tiers of marketplaces catering to different-sized companies, OTC Markets won’t turn its nose up at your business. OTC Markets seems to understand the need of growing businesses much better than many other financial marketplaces.

Based in New York City, OTC Markets is a financial market providing price and liquidity information for almost 10,000 over-the-counter (OTC) securities. The OTC website provides Investors with the information necessary to intelligently analyze, value, and trade 10,000 U.S. and global securities through the broker of their choice.

OTC Markets is organized into three tiers. OTCQX is the highest quality-controlled tier for companies meeting ongoing financial and disclosure requirements. OTCQB is for venture stage companies with current reporting to a U.S. regulator such as the Securities and Exchange Commission (SEC). The last tier is the OTC Pink. OTC Markets offers additional designations for OTC Pink Companies who are sub-categorized if they are in distress or default. This helps investors steer clear of defunct and toxic companies that are often no more than scams.

Lest you think OTC Market companies are made up of tiny little businesses who never make it to the NASDAQ or NYSE, consider this: One of the larger companies listed is Nestle. Another big company we’ve all heard of is Wal-Mart, who years ago started life as an OTC listed company. By 1972, Wal-Mart had earned over US$1 billion in sales — the most quickly a company has ever accomplished this. Shortly thereafter, Wal-Mart listed on the New York Stock Exchange (NYSE) under the ticker symbol WMT. According to OTC Markets, 300 companies have graduated from the OTC financial marketplace to NASDAQ, NYSE, or another market.

Other successful companies listing on the OTC Markets include: Allianz (OTCQX: AZSEY)BASF (OTCQX: BASFY)Danone (OTCQX: DANOY)Deutsche Telekom (OTCQX: DTEGY)Publicis Group (OTCQX: PUBGY)Roche (OTCQX: RHHBY)Computer Services (OTCQX: CSVI), and Nobility Homes (OTCQX: NOBH).

Investors in the OTCQX, OTCQB, and Pink markets can buy and sell securities in a manner almost identical to that of trading NYSE or NASDAQ securities, through the broker of their choice (institutional, online, retail). OTC Markets data is distributed by most major financial data distributors, including Bloomberg, Thomson Reuters, Factset, Fidessa, NASDAQ, and SIX Financial, giving investors good information when researching companies.

OTC Markets says it offers all the benefits of the junior exchange of the NYSE at about half the cost. It costs $10,000 a year in annual fees to be listed on OTCQB, $15,000 on OTCQX, and there are no annual fees for OTC Pink.

Many small and medium-sized companies are waiting to be discovered. It’s no secret that raising money for a start-up or early stage business is a challenge. The venture capital industry seems as if it is returning to 2012-2013 levels of low investment after peaking during the past few years.

It is entirely possible for an OTC listed company to find both the funding and support needed for growth.  By developing a well thought-out financial public relations strategy describing the company’s plans for the future, recruiting an experienced leadership team, developing a broad shareholder base, and providing up-to-date financials and regulatory filings, strong trading in the company’s shares can be developed on the OTC. This scenario presents investors with an attractive opportunity to invest in a company that knows how to be a public company.

Before looking for a liquidity event, Investors are generally willing to be patient and watch the company grow until a market develops for the company’s shares. But, I know from 30 years’ experience that most early-stage investors (including me) like to invest in a company that at the outset has a firm plan in place to offer liquidity to their shareholders. A public marketplace listing helps give investors a comfort level that their long-term financial interests are being met.

business lawyerListing on the OTC Markets is not a five-minute affair. But, in my experience with several young companies who listed on the OTC Markets, it is well worth the effort.

First and foremost, find a really good securities lawyer, preferably one that is listed on the OTC website. Small to midsize law firms are likely the best, but regardless, make sure the lawyer you choose is comfortable working with a company your size. You’ll want a lawyer who is excited about your business and wants to help you succeed. Transactional lawyers are everywhere. Find a lawyer who understands entrepreneurs. Ask for references from other OTC companies with whom they have worked and make sure the attorneys with whom you are working can demonstrate they have practical knowledge and understanding of securities laws and the OTC Markets. This might include: where to go for fundraising, audits, financial public relations, and the like. A good lawyer can save you time and money.

There are a number of long-term benefits of being a publicly traded company. Improved liquidity, higher company valuation, the ability to make acquisitions using shares as currency, attracting and retaining employees with a stock option plan, and greater access to capital at a lower cost. These are just a few of the possibilities as a public company.

The route to becoming a public company is not as easy as it used to be. it now involves more regulation, more oversight, and more work to get there.

In my opinion, it’s well worth the effort.

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