Finance Articles | July 2, 2004
The following data is taken from "Going Public" by James B.
Arkebauer (1994) and the IPO cost website at:
You should keep in mind that costs vary based upon the complexity, the size of the underwriting and the history of the private company.
The following IPO costs would be reasonable for a company with over $2 million in gross revenues and a 3-5 year operating history.
A startup company would pay less than half this estimate to do an IPO. In some cases one or both sources acknowledge a cost listed below, but fail to offer an estimate.
In those cases, I've supplied an estimate based upon my IPO experience.
Printing & Mailing$100,000
Market Prep Costs$90,000
Moody's or S&P$6,000
Blue Sky Fees$20,000 (California only)
Mgnt & Admin$200,000
SEC Filing Fee$5,000
The underwriting cost is a function of the money raised in the IPO.
The NASD allow up to 18% in costs.
If the gross revenue from the IPO is $10 million, this is an underwriting cost of $1.8 million.
Here's how the costs breakdown
Nonaccountable Expense 3%
Accountable Expense 5%
Company supplied IPO buyers usually 50% (10%-90%)
Commission 5% - Its paid by the brokerage firm client and doesn't affect
the money received by the company.
Compare these costs with that of doing a spinoff.
For a startup company seeking a million dollar financing the cost is $150,000. For an operating copy grossing over US$2 million, the cost is US$250,000.
If you want to arrange a spinoff or blind pool, contact me. We can arrange a fee consultation.
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ABOUT THE AUTHOR
He has been the Managing Director of Beowulf Investments http://home.earthlink.net/~beowulfinvestments/ since 1981 and is the Executive Director of the Global Village Investment Club http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/