Traditional Vs Online Exchanges

Published : Feb 2, 2024

Many founders feel that one of their key accomplishments in their entrepreneurial journey is to get their venture publicly-listed as a symbol of success and business standing. And of course, to be able to raise BIG money that the venture needs to grow and expand. They are made to believe that the firm must be successful first before it can get listed.

Or should we say “the firm must be listed first so as to raise the money needed to grow and to become successful.”

Getting listed on the traditional stock exchanges is a gruesome, costly and risky endeavour. It can set the candidate back by millions of dollars in audit, legal, tax, valuation, bankers, brokers, investor relations, media, restructuring costs. It is a big ask for a growing company to be able to set aside such sums when there are greater needs for money in market expansion, product development, branding and promotions, logistic and supply chain integration,production capacity, staffing and training. So many founders seek the alternative instead of public money, they go for private equity and venture capital funds. Of the thousands of promising companies, only a few caught the attention of these funds but what is the alternative for the unchosen ones?

The Private Equity Platforms “PEX” is the portal for investors, issuers (companies seeking funds) for them to interchange ideas and information and the exchange of money for stocks, debts, notes and so forth. It is like a stock exchange designed for companies that are not yet publicly-listed but need to seek public investors to invest.

With the changed legal landscape and the rapid adoption of online investments, companies can now raise up to $75 million with Regulations A+, without a costly and complicated IPO, from investors everywhere. For those start-ups with only an idea, they can ride on Regulations C to raise up to $5 million in a year. Those firms who are raising up to $20 million can adopt Regulations D to raise money from accredited investors with a simple Form D filing.

In short, the USA is making it very easy for US firms to raise money. And US firms can deploy the money raised to grow their domestic and international business. Many US companies are majority or wholly owned by foreigners. It is easy to set up a US company online and have your incorporation documents issued within days.

The PEX outsourced legal teams to help companies with their SEC submissions for a very very very reasonable price. There are many “virtual” auditing firms, with their low cost operating model, can have the issuers’ accounts reviewed or audited on the fly. Many PEX have online tutorials to guide the founders on how to prepare their Offer Memo, Pitch Deck, Subscription Agreement to get their fundraising listed on the PEX.

Some PEX do not charge listing fees but a higher success fee of up to 10% on the sums raised. The going rate for IPO raises by brokerages and investment banks is above 7% commission PLUS a retainer of a couple of million of dollars (regardless the result of the fundraising exercise). 

With such low or no entry costs to get listed on the PEX and the huge demand for small cap investments by the individual investors, it is an opportunity that many firms should not miss. Compared to pitching tirelessly to VC and PE funds coupled with their demands and due diligence process, it makes sense to give efunding a try.