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21 Jan Starting Your Own Public Shell

Taking your company public has been a financial boon to entrepreneur and investor alike. And, thanks to Rule 419, there are some pretty interesting things you can do when you create your own public shell. We’re always in process with at least a couple of such public entities as we need them for the deals and opportunities that come across our desk. In fact, the biggest bottleneck to getting deals done is a good, ready and clean shell. Having access to a good reputable source to shells can be difficult. Those that do the best in this market are those that have either the money to buy or the knowledge to build or create shells from scratch. We work with both investors and entrepreneurs who are looking to get into the “public shell game” by starting a public shell corporation the cheap way.

A Process, Not an Event

Each step in the process is a building block from the previous step and as a company moves along the value chain, the public shell that is created grows in value. The process of getting your own public shell created involves creating a public C-corp, soliciting and on-boarding enough shareholders and getting your shares registered AND trading.

Getting the public shell’s shares registered and trading on the OTCQB is perhaps the biggest jump that can be made in the value of the shell. As of this writing even the shells that were created from scratch and merged with something very small for purposes of trading stock are valued between $350K and $450K. That means for those that have the wherewithal and patience t

SPACs

We already outlined some of the features and benefits of Special Purpose Acquisition Companies–which are derived from Rule 419 mentioned previously. Rule 419 allows for the creation of public shells that are essentially used as vehicles for a reverse merger later. In the last couple of decades, they have been used extensively in alternative public offerings as a vehicle for placing PIPE funds and finding a suitable reverse takeover candidate.

Should I Go Direct?

Oftentimes creating a public shell is not quite the right strategy. If you’re looking to raise immediate financing with your public offering (often funds are raised through warrants). In many cases companies opt for the DPO method as it avoids the shell game. That is, companies aren’t dependent on finding the right shell, making sure it’s clean and THEN prepping their company to merge in. They simply opt to go direct through S-1 registration with the SEC. But, this process isn’t quick either and can take a number of months to complete, just like your own 419 vehicle. Which direction your firm decides to go depends on your internal budget, if you need to raise some funds in the offering and how fast you need to get there.

Cost vs. Timing

We’ve discussed the cost of such processes in light of the cost, quality, speed matrix. In getting prepped for the process, unless you want to purchase the Cadillac of public shells for as much as $500K for an OTCQB shell (trading w/float) or $1MM+ for  NASDAQ shell, it may be more wise to take the frugal approach.

The faster you want things to go, the more expensive they’ll be. That’s as true in life as it is here. Be prepared to pay more the faster you want to move.

Your Public Shell Has Value

In the event that your reverse merger transaction does not materialize or you decide not go public, it is important to note that your shell has accretive value in and of itself and that not all is lost. That is, you’ve not sunk money into something that cannot be sold for at least at or more than what was originally invested. The longer you hold and work on your public shell, the more value is added.

In the RTO investor world, there are those that simply throw money at the manufacture and production of public shells for the purpose of adding accretive value and then selling the resulting shell to a company in need of doing an APO via reverse merger. While some don’t like the idea of just creating a shell for the shell’s sake, it’s a hard fact that the demand for such vehicles can be extremely high and the bottleneck is always a good clean shell. Avoid the reliance on someone else: create your own.

 

 

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.