Expense of Going Public: An In-Depth Overview

Going public through an IPO closeup-shot-entrepreneur-working-from-home-his-personal-finances-savings

Is the price of going public too high for ambitious startups? What are the costs and challenges that accompany this transformative journey?
Taking a company public through an Initial Public Offering (IPO) is a significant milestone, but it comes with substantial costs. Here’s a breakdown of the various expenses involved in the process of going public:

1. Underwriting Fees

Underwriting fees are one of the largest expenses. Investment banks charge fees for managing and underwriting the IPO. These fees range from 3% to 7% of the funds raised.

2. Legal Fees

Legal costs cover preparing necessary documents, compliance with regulatory requirements, and guidance through the IPO process. Legal fees vary widely but typically range from $500,000 to $1 million or more.

3. Accounting and Auditing Fees

Public companies must provide audited financial statements. The process involves extensive accounting work and can cost between $500,000 and $1 million, depending on the complexity and size of the company.

4. Regulatory Fees

Fees paid to regulatory bodies such as the Securities and Exchange Commission (SEC) include registration fees and listing fees for stock exchanges. These can amount to hundreds of thousands of dollars.

5. Marketing and Roadshow Expenses

Promoting the IPO to potential investors through roadshows and marketing efforts is crucial. These expenses cover travel, accommodations, and marketing materials, totaling around $500,000 to $1 million.

6. Printing and Distribution Costs

The costs of printing and distributing the prospectus and other related documents to investors and regulatory bodies can range from $100,000 to $300,000.

7. D&O Insurance

Directors and Officers (D&O) liability insurance protects the company’s executives from legal actions. Premiums for D&O insurance typically cost between $250,000 and $500,000 annually.

8. Ongoing Compliance and Reporting Costs

Post-IPO, companies incur ongoing expenses to comply with public company reporting requirements, including regular audits, quarterly and annual reports, and compliance with the Sarbanes-Oxley Act. These costs can amount to $1 million to $2 million annually.

9. Other Miscellaneous Costs

These can include fees for advisory services, public relations firms, and other consultants hired to facilitate the IPO process. These can add another $500,000 to $1 million.

Total Estimated Costs

The total cost of going public can range from $4 million to $10 million or more, depending on the size and complexity of the offering. For large IPOs, these costs can be substantially higher. It should also be noted that the cost and effort is dependent on the particular exchange being targeted to place the equity of the company. In countries like Australia, executing an IPO is more common and at an earlier stage for deep-tech startups as compared to the USA and its different stock exchanges.
Going public is a costly and complex process that requires careful planning and significant financial resources. While the potential benefits include increased capital and visibility, companies must weigh these against the substantial expenses and regulatory burdens of being a publicly traded entity.

You may also like

team-working-on-the-project

8 Steps in Financial Forecasting

Financial forecasting is a vital tool for businesses to anticipate future performance, make informed decisions, and stay prepared for challenges and opportunities. Whether it’s for budgeting, investment planning, or cash flow management, a structured approach to forecasting ensures accurate and actionable insights.

Read more
a modern startup office environment with a diverse team working collaboratively

Startups and Customer Traction

We encounter startups in their early stages in different roles. Sometimes, we encounter them as part of our due diligence efforts for an investor or investment syndicate. Sometimes, we encounter them as part of our fundraising support services.

Read more
team-working-on-financial-planning

Steps in Financial Planning

Financial planning is a critical process for ensuring the long-term success and sustainability of any organization. It involves setting clear objectives, gathering comprehensive data, and creating robust financial statements to guide decision-making.

Read more