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

iew-paper-clips-with-green-background_

What Is the Most Dangerous Stage of M&A Integration?

Ever wondered why the post-deal integration phase is considered the riskiest in M&A? Here’s what you need to know. The “Post-Deal Integration” phase is a critical period that occurs after the merger or acquisition has been completed but before the two entities are fully integrated.

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

Expense of Going Public: An In-Depth Overview

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.

Read more
corporate-workers-brainstorming-together

M&A Tips: Key Messages for Employees

How can you ensure your employees stay informed and confident during a merger or acquisition process? What key messages should you prioritize to maintain transparency and address their concerns effectively? When a merger or acquisition occurs, clear communication with employees is crucial.

Read more