It is a common misconception that going public on the Pink market is a low cost, efficient way to gain visibility for your company, and in turn, establish liquidity. However, when you dig a little deeper, you find that cheaper is not always better and that it can add substantially more cost in the long run. Regardless of your goals in the public markets, there are key factors including transparency, public perception and tradability that should be considered when evaluating your options.
To uncover some of the challenges and benefits of going public, we reached out to a series of advisors to garner their insight and perspective on entering the public markets:
Legal:
Laura Anthony, Esq., Anthony L.G., PLLC advises, “Having extensive experience representing clients on OTC Markets, I unequivocally advise my clients that they should look to trade on the OTCQB or OTCQX markets versus the Pink market every time. Among the many benefits of those premium market tiers, is the verified corporate and financial disclosure and increased corporate governance requirements that make it easier to access capital from longer term investors on better terms.”
Joe Lucosky, Esq., Lucosky Brookman notes, “Any serious company needs to be quoted on the OTCQX/OTCQB markets if they want to raise the right kind of capital and get noticed by the right kind of investors. A large part of our practice includes speaking to investors, and the conversation is always the same— investors strongly prefer companies that trade on the OTCQX/OTCQB over companies that trade on the Pink market.
The marginal additional cost of compliance is well worth the price of admission, because it will open up a world of so many more opportunities and possibilities that cannot be achieved solely by trading on Pink. In addition, there are thoughtful ways to keep compliance costs to a minimum while still receiving all the benefits of being traded on the OTCQX/OTCQB—you just need an experienced and strategic advisor to help you do it right the first time.”
Banking:
Becky Popoff, B. Riley FBR states, “As a qualified OTC sponsor, B. Riley FBR works closely with domestic and international companies to navigate the process of obtaining a direct or dual quotation on the OTCQX / OTCQB market. It is our goal at B. Riley FBR to make the quotation process as seamless as possible in order for the issuer to have the best experience from start to finish.
At B. Riley FBR, we strive to educate the issuer on the process and benefits of quoting on the OTCQX / OTCQB versus going public on the Pink market. A common misconception issuers have is that Pink is the most cost-effective solution, however, many broker-dealers are prohibited to trade a Pink stock, therefore the issuer will not get the U.S. exposure, visibility and liquidity they aim to see in their stock.”
Accounting:
Eric Sherb, EMS Consulting Services LLC advises: “It’s advantageous to engage with PCAOB registered auditors in the company’s early stages, despite only limited operations. This will allow for smoother audits and provide cost savings and efficiencies in the long run. Additionally, audited financials provide immediate credibility for a company. Choosing options that increase the company’s standing will provide investors with the appropriate levels of disclosure to make educated investments in the company. Since Pink does not require audited financials, it will cause investors to think twice before investing in Pink-traded companies.”
It is important to seek advisors that are reputable, reliable and understand your company’s goals. It is more cost-effective to go public with the right professionals in your corner, that can guide you to the market tier that will best scale to meet the needs of your company. On the road to becoming public being “penny wise and pound foolish” can certainly lead to far greater costs in the end.
