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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
AI helped shape this, but the ideas remain human at heart.
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The TD Shepherd team is happy to congratulate the Qualinx B.V. team on successfully raising €20 million from Dutch investors. TD Shepherd has provided strategic support to Qualinx over the years (starting in 2018), witnessing each step of their journey; their growth and success, makes us truly proud of their outstanding achievements.
If there’s one thing we’ve learned about surviving the Valley of Death in deep tech, it’s this: don’t go it alone. This stage is all about leveraging relationships, and corporate partnerships can be your most valuable lifeline. The key is to think beyond customers.
The so-called “Valley of Death” in deep tech isn’t just about running out of cash—it’s about navigating a period where expectations clash with reality. Investors want to see traction, but your tech isn’t market-ready. Customers are intrigued, but they’re not ready to commit. And your R&D costs? They’re still burning through cash like it’s a bonfire.