Going Public Is Hard. Here’s How We Did It.

By Steve Chung

Founding and leading a company to IPO seemed like a distant dream, and I never thought it would come true less than two years after starting Frankly.

frankly goes public on the tsx

An IPO can be a game-changing experience for any company, and it certainly is for us. We can now use our public platform to access capital quickly and through our publicly validated stock price, attract sought-after talent here in the Bay Area with “real” stock options. The transparency and prestige of being publicly traded helps us connect with high-caliber customers and partners. We were also able to sidestep the dynamics of Silicon Valley investors who require board seats and preferred stock. Should we ever want to grow faster inorganically, we also have public stock to use as currency to expand our ammunition for acquisitions.

We took Frankly public while it was still pre-revenue and the IPO raised over $20M. So how did we do it? The answer lies north of the border: the Toronto Stock Exchange. That’s right; we went public in Canada.

In the United States, an IPO can take more work and money than entrepreneurs bargain for.

They should not underestimate the raw costs. According to a study by PWC, 48% of CFOs with firms that had gone public in the US said that the one-time costs of going public exceeded their expectations. These costs include underwriter fees, legal fees, drafting new articles, audits, financial reports, and road show expenses, to name a few. Fees for listing on US stock exchanges range from $125,000 to $250,000 for initial listing and from $35,000 to $500,000 for annual listing fees. PWC reports that in addition to underwriter (investment bank) fees of 5%-7% of gross IPO proceeds, the average company incurs as much as $3.7 million of costs directly attributable to going public. 87% of surveyed CFOs reported that they incurred an additional $1 million of organizational one-time costs as a result of their IPO.

Requirements are stringent in the United States and many startups have no chance of meeting them for many years. For example, to list on NASDAQ, a company must meet 1 of 4 standards ranging from pre-tax earnings equal to or over $11 million to total assets equaling at least $80 million.

The numbers are daunting; there are over 18,000 startups in on AngelList in Northern California alone. Only 273 companies had an IPO in the entire US in 2014, and only 55 of those were in the technology sector.  Basically, if you’re a tech startup looking to go public in the US, the odds are stacked against you.

An IPO in the US can also take a very long time, and admittedly, the process is no small undertaking in Canada either. It takes several months in which company executives and their financial teams work with law and accounting firms to prepare paperwork, strike a deal with one or several investment banks, and then go on an intense road show of meetings and presentations to drum up investor interest.

Is going public right for you? Should you think about an IPO?

On May 28, I will be talking about my experience in taking a Silicon Valley tech company public in Canada, and how we avoided some of the hurdles of US IPOs (as well as lessons learned). I think it is one of Canada’s best kept secrets and my guess is that it’s a story unlike anything you’ve ever heard.

Join us to hear the story and meet the players that made this happen, including a special visit by the President of Canada’s TSX Venture Exchange. The event will take place on Thursday, May 28, 2015 5pm-6:30pm at the Stanford StartX offices in Palo Alto. Food and drinks will be served.

The event is free to attend, but please register beforehand at:  http://www.tsxignite.com/en/event-palo-alto

Frankly Inc. opens the TSX Venture Exchange on January 29,2014