How to go public on a major U.S. exchange

A complete overview of all the steps in the IPO process in the U.S.

Today, we look at the IPO process from start to finish.

To have this conversation we invited in the entire team of service providers involved in helping a private company IPO onto the NASDAQ or NYSE.

Our panel members include:

  • The company advisor, Gregg Jaclin from Exchange Listings.
  • The investment banker, Ben Zucker Managing Director at EF Hutton
  • The securities lawyer, Ross Carmel, Founding partner at Carmel, Milazzo, & Feil LLP
  • The transfer agent, Seth Farbman, founder of VStock Transfer
  • The auditor, Brian Zucker from RRBB, Rosenberg, Rich, Baker, and Berman
  • The financial printer, Brian Cavalli, from DataTracks. 

They explained the process step by step, the costs associated with each step, and the benefits of going public. Specifically, the opportunities for smaller private companies to go public with micro-cap IPO on the Nasdaq.

Video Transcript:

Gregg J.: Hi, my name is Gregg Jacklin, I’m from Exchange Listing. We focus on working with micro-cap companies, and we will talk throughout this morning about what a micro-cap company is and the process of undertaking IPOs as well as uplistings, if they’re on the OTC market but we focus mostly on the micro-cap IPO market. The idea here, talking to John, was to really, hopefully educate you people, educate people in general. Because we’ve been doing this for the last few years, and the fact that this market even exists. Most people don’t even realize that there is a micro-cap IPO market, that there is no revenue requirement, there’s no profitability requirement to be a NASDAQ or New York Stock Exchange traded company.

Gregg J.: From an Exchange Listing standpoint, we come in and, honestly, a big part of our goal is to introduce some people that are sitting here to my left and they take it from there. And so it’s just, it’s a process that… As long as the company can properly value themselves to get to the public markets, and then from EF here, we’ll talk probably more about that. Then they’re going to get their IPO undertaken. Where does that weave into you guys? As John has told me about what you guys do, I think that a lot of these companies, the smaller companies need after-market publications written as well as my work with companies that would be interested in doing this but I really think that there’s a role… As these companies need IR, you need after-market support, there’s a role for you guys working with a lot of these companies because of what you can provide. So with that, I’m going to just introduce everybody real quick, I’ll start with hands up if you’re here from EF Hutton and then I want you to talk about yourself.

Ben Zucker: Sure. Thanks, Ben Zucker from EF Hutton. I’m a managing director. We are the investment bank, which means we do the underwriting, we’re very hands-on throughout the whole IPO process. We’re going out through our team and our sales efforts to find and identify the investors that are going to be participating and putting up the capital as part of the IPO. I’ve been working in financial services for about 10 years now, a little over 10 years. EF Hutton, if that name rings a bell, we did actually… Our firm’s somewhat new. We started about two years ago. We bought the naming rights for the legacy firm, EF Hutton, the legacy brokerage firm, so we’ve been up and running for about two years now. We’ve made a big splash in this micro-cap space, we’ve raised about 9 billion dollars in all since opening and about 7.5 billion of that came in 2021 alone. And we do focus a lot of our efforts on the uplisting space that was mentioned, and also on the micro-cap and nano-cap IPO world. So I’ll pass it off to Ross.

Gregg J.: This is Ross Carmel of Carmel, Milazzo Securities Attorney. Go ahead Ross.

Ross Carmel: Nice to meet everybody. As Greg mentioned, yeah, we’re the securities attorneys. We currently represent about 35 plus publicly traded companies, NASDAQ, New York Stock Exchange companies. Similarly, we specialize in small-cap and micro-cap companies. We don’t typically represent Coca-Cola or Goldman Sachs, we represent companies in the small-cap range and investment banks like EF Hutton. For all publicly traded company clients, not only do we do their IPOs, we do their secondary offering, shelf offerings, pipes, private placements. We act as outside general counsel for them, doing everything from stock option plans to employment agreements. And of course, when you’re a publicly traded company, you also have to do your SEC reporting requirements. So your Q’s and your K’s. Very similar stuff for our private company clients without the SEC reporting. So private placements, financings, debt financings, equity, MES, whatever they might be. And with that, I’ll pass it off to Seth.

Gregg J.: This is Seth Farbman from VStock.

Seth Farbman: Hi, good morning, everybody. So, Seth Farbman. I’m the founder of a company called VStock, we are what’s known as a stock transfer agent. Looking around and everybody at this table, I am happy to say we are the low guys on the totem pole when it comes to this process, yet we view it as an important one because we control the securities, the actual shares. How does it get from the company directly into your brokerage account, enabling you to sell it and make millions of dollars? That goes through a firm like ours. At VStock, we work with roughly about 800 publicly traded companies on the OTC, NASDAQ, New York Stock Exchange. And we play a unique role, in that we’re in a position that we help companies with a variety of different services.

Seth Farbman: And you’ll see throughout the day how there isn’t just one piece of the puzzle in the IPO journey, there’s a lot of different components that have to come together to make it a successful process and most importantly, post-IPO, there isn’t this magic that happens where, “Okay, I’m public now, people are going to come running out and buy my stock.” As Greg had mentioned, IR, after-market support, liquidity exposure is a really important part of that, which I think that each and every one of you will have a very keen interest in being able to support perhaps some of our clients and vice versa. With that being said, I will pass it off.

Gregg J.: This is Brian Zucker from RRBB Auditor.

Brian Zucker: Hello, nice to meet everyone. I work for RRBB, Rosenberg, Rich, Baker, and Berman. We’re a 60-year-old accounting, auditing, tax and advisory firm. We’re about 75 people, and like Ross’ firm, we specialize in this firm and do from A-Z guiding companies through the process. We have about 30 currently and we add about… We take about one a quarter companies public each year. I run our outsource CFO service so besides our audit group, I usually get on the other side and help clients improve their accounting systems and get them ready for the IPO process.

Brian Cavalli: Hi my name is Brian Cavalli, here from DataTracks. We are a financial printer, and basically what we do is we compile everything that everyone up here has been doing, and we then go to the SEC with it. It’s just a language that when a private company goes public, that is required in a specific code or a specific language once again, we take that language, we then file with the SEC and then on the quarterly basis and annual basis as Ross mentioned earlier, we handle that as well and just make sure that everyone is compliant with the SEC.

Gregg J.: So before I start off with the… I also want to introduce, I think a lot of you met Ivan the other day, Ivan just throw your hand up over there. So you’ve seen Ivan last, Ivan worked with us to exchange listing, helping with the marketing side, so he’s fully integrated with a lot of what you guys are doing and certainly we can go back to him with some general marketing questions. But I’m going to start off with Ben. Ben maybe just talk about what you look for in a potential IPO company and what a micro-cap company is.

Ben Zucker: Sure.

Gregg J.: Can you pass him the mic.

Ben Zucker: Thanks. So what do we look for in a micro-cap company? Really what we’re looking for is a good quality story, something that’s going to resonate with the street, and when we say the street, we mean public investors, whether it’s retail investors coming from our own retail distribution network or small-cap institutional investors and small family offices. You want a story that’s going to get the market excited. So what does that mean? If you have actual… If you do have revenue, that’s great, you don’t need to in the micro-cap world, but having revenue and some demonstrated track record of financial performance is obviously going to be a positive, demonstrated growth if you’re getting signing new customers or customer adoption, what have you. It’s normally the high ticket items that you think would resonate for investors, if it’s a sexy business that’s touching on the latest key themes or trends at the time. Right now, those are subscription models. Maybe you’ve heard the word sassy, that means it’s a recurring revenue stream, so investors love to see that because you don’t really have to do too much to win new business, once you sign up a new customer, they just keep paying it month in, month out, year in, year out.

Ben Zucker: The market loves recurring revenue business models, anything that gives investors predictability or an understanding with a high degree of confidence of where the earnings are going to go, where they should be going, growth, stuff like that. Those are ESG themes, those are also really kind of in vogue right now, and there’s a lot of pockets of investor capital migrating towards any kind of ESG strategy, that’s certainly a flavor of the month, and also it’s really important that you have a high quality management team. And just because you’re in a high growth sector, there’s plenty of management teams that have missed and whiffed on those opportunities ’cause it’s just not the right team at the helm, it’s super important and critical, and when we’re meeting these companies and trying to suss them out and evaluate their ability to stand on their own two feet on a major exchange like the NASDAQ or the New York Stock Exchange, it’s critical that the team has… They’ve been battle-tested, they’re proven, they’re industry experts, but you want to feel confident that they’re the right team to kind of execute on that growth strategy. So those are a lot of the things that we look for. And of course, there’s added nuance like a clean capital stack to make our jobs easier, but we can always work through that. It’s really a good company positioned in a good industry with the right management team at the helm. Sorry if that was too long.

Gregg J.: No, no, that’s great. So Ben with that, since there is no revenue requirement, what do you look for? Is there a certain market cap evaluation that you look for in a company to think that they have to be able to have this value in order to go to the public markets?

Ben Zucker: Yeah, so there’s a lot of reasons why, it’s a great question. There’s a lot of reasons why companies go public. Generally, it’s to avail themselves of the liquidity and the capital raising quickness that comes from being a publicly traded entity. So a lot of the times, these management teams maybe are tapped out raising from their close network of friends and family. What we would look for is when we’re trying to evaluate the company, we’re going through the models, we’re looking at their projections, we’re doing various market-based comp analysis, discounted cash flow analysis, we’re trying to size it up and get an idea of what the valuation of this company is going to look at once we IPO it, and you really want to have some kind of… Ideally, you want to have some kind of size or scale there.

Ben Zucker: You’d want to get comfortable that your market cap is hopefully going to be somewhere above 25 million, 30 million, and the reason we say that is there’s just a whole lot of costs associated with being public, and you benefit because you can raise money very easily and execute on your growth strategy but as you heard from everyone up here, there are costs, whether it’s your counsel or your transfer agent or your audits and all of your requisite filing. So you want to just make sure that if you’re going public as a company, you have a little bit of that scale, you’re not going to have a valuation of $5 million because then your public company costs, which maybe are going to run you a million dollars over a year just to maintain all your filings and everything, it’s just going to chip away at your equity capital base. So we really like to see companies push that up 25 plus, 50 million, and the larger the better because then you’re really opening yourself up to more eyes and investor interest that we were talking about earlier. How do you get on the radar and improve your aftermarket support and awareness in the market?

Gregg J.: I feel it’s important to note that most people who come to us don’t say, “We want to go public, we want to go on NASDAQ.” They want money, and they’ve tapped out their resources, whether it’s their friends or family, whether it’s a crowd funding, whether it’s debt financing, whether it’s private equity which is not as plentiful as if it was before, and then we educate them on the fact that this micro-IPO world exists and introduce them to people like Ben and the professionals you see here because this is the way for them to access money as well as obviously giving them… Making their cash, their stock liquid and making it and using as a currency, but most of them don’t necessarily come to us with the idea of going public and still looking for the capital and this is the a way to get there. Ross, if you can talk maybe about the IPO requirements, what the company needs to have to meet the standards for NASDAQ or New York, but let’s just stick with standards and about the registration process.

Ross Carmel: Sure, happy to. So when a company comes to me and it’s always a learning curve in our space, typically they’ve never done an Initial Public Offering before, worked for a public company, so what I usually tell them is, we usually provide what’s called a due diligence checklist, it’s very sector agnostic, a lot of things on it don’t apply to their particular business, but for our purposes, we’re just really looking at the corporate structure, the security side and making sure how they’ll meet NASDAQ and SEC requirements. So what I would say is, a typical timeframe for an IPO is about four to six months depending upon how many comments and questions we get from the SEC and from NASDAQ on New York Stock Exchange? Typically it takes us about 30 days to draft an S-1 registration statement. From there, that gets circulated to the bank, as well as their counsel, it gets reviewed, gets commented on, the auditors are reviewing it, commenting, and signing off on it and then you file with the SEC.

Ross Carmel: On your first filing with the SEC, what you expect is, it’s a 30-day turnaround. So from there, the SEC will, after those 30-day clock goes, you’ll get comments back. A good filing, you should expect between 15 and 25 comments, most of them will be financial and accounting related, and some of them might be business specific. On a parallel track, you’re also filing with NASDAQ or New York Stock Exchange. Their comments typically are much more, “Hey, how do you meet our listing requirements?” Or maybe some business related questions. So basically you’re answering those, you’re responding to those comments, and again you’re turning around the draft of that document, hopefully within about two to three weeks depending upon timing and depending upon the completion of the audits. And basically you’re going back and forth like that for a few months until the SEC says, “Hey guys, we have no more comments,” and the Exchange, whether it’s NASDAQ on New York Stock Exchange says, “We also have no more comments.”

Ross Carmel: And then from there a guy like Ben will say, “Hey Ross, we’re going to start our road show, take them out. We want to soft circle the money for the client,” Will then tell us, “Hey, we’re ready to go effective.” From there, you file what’s called a Notice of Effectiveness with the SEC, 48 hours later, you’re what’s called pricing the deal, so 25, let’s say, $25 million deal, $10 a share, a company will either accept or reject that pricing, and then if they accept it, the next day, you’re trading on NASDAQ on New York Stock Exchange. So that is your typical process.

Ross Carmel: As far as requirements to meet, I think Greg made a great point for it. There are no revenue requirements. We represent tons of biotechnology companies that are pre-revenue but they’re trading on NASDAQ. A lot of the big requirement when you’re looking to go public, is two things. One, can you get $15 million up on affiliated public float, and what does that mean? Well, that’s what the guys like Ben and EF Hutton do, when they raise you the money in an IPO, $15, $25 million, that gets you the requirement to meet that NASDAQ listing standard. The other main requirement is, “Hey, do you have 300 round lot holders? Well what does that mean? Well do you have 300 shareholders that have 100 shares or more?” Again, guys like Ben EF Hutton, they’ll go out to their retail and they’ll circle that up for you. So it’s not really ever about revenue, top line, bottom line, it’s really about, “Hey, can you meet these requirements?” And a lot of that comes directly from the proceeds that you’re going to receive from the IPO.

Gregg J.: Thanks Ross. Seth, first of all, I think important about Seth is he knows everybody. Seth is the most important person at the table. Well, Ben was the most important person but otherwise [laughter] Seth is the most important person at the table, in addition to the transfer HMO we talked about. Seth is a serial entrepreneur so he’s got his hands in a lot of things, wears a lot of hats. So Seth, talk about the transfer HMO and the IPO, but also tell them about some of the other services you provide.

Seth Farbman: You’re too kind, Greg. [chuckle] I’ll just mention it by way of background, just to try to give as much value as I can to everybody at the table today that’s looking to make that decision about going public. I had spoken to John a little bit before about… That many of you are in a position to decide next moves for your business. So I very much like many of you, for better or for worse may have that bug in our DNA system of enjoying building companies, scaling companies, and then deciding what to do with them. Prior to VStock, I had a company that did SEC filings and started out in my basement, slept on my couch for six months, ate nothing but pizza, ended up scaling that to about 4000 publicly traded companies and sold it to a firm called PR Newswire.

Seth Farbman: So that was a private exit and then I said, “Oh wow, that’s fun.” [chuckle] Let’s see if we can… Let’s see if we do that again,” and so had a similar exit strategy to Wolters Kluwer and then another one to a private equity called Sunstone. And so the question is, “Well, what about the going public route?” And so I think something that’s really critical to think about for each and every one of you, is that in addition to the capital that everybody has spoken about today, something that you have to decide if it excites you is using the shares as currency, because a lot of people will go public for that very reason. Use that stock as currency to either hire talent that otherwise there’s no way you could afford, or most importantly to do acquisitions. It seems like there might be a lot of consolidation in this industry in particular, but there are a lot of people that just go public, not necessarily ’cause they need the capital, but because they want to go on a buying spree and they want to go on a roll-up strategy, and they use those shares as an opportunity to do those acquisitions.

Seth Farbman: As a transfer agent, when we deal with the shares… I was talking to a guy when we first got into the stock transfer business which is about 11 years ago now, and I was looking at his paperwork, and I was looking at his list of shareholders that he’d given me, and it was Bill Gates, and Elon Musk, and Steph Curry, and I called up the CEO, I’m like, “I gotta ask him, I’ve seen a lot of shareholder lists but how do you get these guys? It’s incredible.” He’s like, “Oh, I thought you wanted a list of people I’d like to have as share holders.”


Seth Farbman: I was like, “We would all like to have those people.” So it’s critical to figure out how to get in front of the right people, and I think that some of the services that you have actually puts you at a very strong advantage against the average CEO who has no idea how to get in front of the right audience. Many people will go to a conference once to twice a year and call it a day. I’m a big LinkedIn enthusiast/junkie, which we could talk about another time. Everybody up here knows that. But as the transfer agent, we are… And with this I’ll end, we’re really the window between the shareholder and the company because as I said before, how do those shares get from the company directly into a shareholder’s brokerage account?

Seth Farbman: And so if we’re responsive and we’re receptive and knowledgeable, when our 35 people are answering the phones every day to the shareholders, they’re like, “Oh, this is a great company. I’d love to invest more in it.” Versus if there’s lack of service or responsiveness, they view that as if the company is not really worth investing in. And so that’s really critical, is just to be responsive as a transfer agent because times have changed. Historically, you may have only had 300, 400 shareholders and the rest were in electronic format. In the world of Reg-A, which maybe we’ll touch on later today, or crowd-funding, some of our clients have 20,000, 25,000 individual Mom and Pop shareholders. And you really, as a CEO, need to know how to manage those expectations, and that’s part of the role of the stock transfer agent, we just take that head ache off your plate.

Gregg J.: So I’m going to turn over to Brian Zucker now who’s going to try and make financial statements and auditing sound exciting, but it’s obviously a key component here. I’m a former securities attorney, have an office up here, and people used to come to me for years and say, “What do we need to do to get started?” And I’m like, “You can engage me, you can engage any of these other guys. The audit’s what’s going to hold you up. It’s always his fault,” so it’s… Brian is the key component here, both in terms of the audit side and in terms of having independence and the CFO role, so to speak. Brian, why don’t you just start off and talk about the audit requirements for going public, and then we can talk more about the independence and the PCAOB rules.

Brian Zucker: Sure. Well, I thought I would actually start very briefly on what is an audit and why. Why are we doing this? And the answer is back right after the depression… And the reason for the depression, a lot was the stock market crash, all that crazy stuff. And Congress passed laws in 1933, which just assured that potential investors got a full, accurate, and complete disclosures on of the information they were using to make decisions about buying stock. One of those requirements was to have an independent CPA firm that is approved by the PCAOB, which is a whole another designation, come in and run a bunch of tests on all the assets, liabilities, and the financial statements that are prepared internally, and make sure those financial statements meet with all of the pre-requisites that are required. So namely, there are… Financial statements have to be shown for your company for the last two years for these small cap companies. So typically, a balance sheet, income statement, cash flow statement, the changes in shareholder equity. There’s also a lot of footnotes, disclosures, and everything that a reader might need to make an informed decision. Did I answer your question?

Gregg J: Pretty much. [chuckle]

Brian Zucker: Okay. So as everybody said it’s an important step in the process. Most of the time, as you hear, they can do this whole thing in 60 days, but unfortunately, the audit usually can’t get done 40 to… In 60 days, so we’re usually, as they said, the bad guys. So if and when you take this step, I would suggest from the early onset that your auditors get brought in, actually have the experience that these gentlemen talked about, and are ready, willing, and able to go from the first all-hands meeting. So important step, we’re independent, we’re looking to just present your information in the most full and accurate way. And if we do that, then a lot of the problems that you’ll read about and examples that are horror stories could easily be avoided. It doesn’t matter that your company is the best investment. As a matter of fact, even bad investments can go public. It’s just whether or not you make all the disclosures and let the investors make their own decisions.

Gregg J: I can’t stress the importance of the audit guys. I mean, we can get in… Having been around this market a long time, the company can’t go public without getting an audit done. So you can have a great company, if their books and records aren’t in good order, or if you go to acquire a company and then the books and records aren’t in good order, we can’t get an audit done, we can’t neither do the IPO, we can’t do the acquisition. That auditing is going to have to get done. So this really is a key component, and it’s one of the first people we bring in to get started. And then again, blame them when it gets delayed, but it’s the key to the whole thing, because we can’t do anything without the audit.

Ben Zucker: I’d like to speak out of turn, sorry.

Gregg J: Yeah, but no, that’s…

Ben Zucker: We got referencing potential six-month timeline, if you’re starting Denovo, you come up and get us all under your umbrella right from the start. Just to put that in perspective, if you came to the table a little prepared with your audits in hand, we could be having a conversation where we’re trying to do the whole process in three months or maybe even quicker. So just so you see how critical and how time-consuming those audits can be, that can be half of the entire process.

Gregg J: And I’ll give you an example of that right now that we’re actually working on a Malaysian IPO that we had a call on this morning with Ben and a lot of the people that are up here. And the S1, the registration statement, which Ross can talk more about, was filed 45 days ago. And we’re almost done with the SEC already, this IPO is going to be done in basically three months from when we filed registration statement. Unfortunately, it took a year to get the audit done, so we’re fifteen months into the process so and obviously…

Brian Zucker: Not the auditor.

Gregg J: Not the auditor.


Gregg J: Apparently he couldn’t get to Malaysia during Covid so he couldn’t be the auditor. But the point is that once the audit gets done, everything can move. But until then, you’re delayed. And the timeline that we’ll talk more about is going to be delayed. I’m going to hand it off to Bryan Cavalli down there. Brian talk about the printer role in the IPO process, when you get into the process and both in terms of the EDGAR side and the printing.

Brian C: So our process is, it’s important because you can’t do it without us. But we’re probably the… If Seth said that he’s the low man on the totem pole, we are the last person thought of in this process. So really what happens is it goes from either Ben or Ross, or Ross to Ben, and then obviously Brian’s side is involved. And what happens is we will receive the S1 or the offering, and once again, then you use that language that I mentioned earlier, the EDGAR language. And really what it is, is it just takes a Word document and it gets sent to the SEC in this EDGAR language. After it goes to the SEC, then it goes back to the working group team, and then that’s when the alterations get taken care of. We are kind of the central focus of it. It goes from the working group team to us to the SEC, the SEC to us, back to the working group. So we will obviously be involved with the process 24/7/365. Whenever you’re involved, your working group is involved, we’ll be involved. And our job is really just to make sure that we get it done accurately and quickly, so we’re not holding anything up and we’re just leaving the holding up to the auditor side.

Gregg J: And hold up…

Seth Farbman: Just to add on to what Brian is saying, ’cause I used to own an SEC filing firm…

Brian C: My first job was with Seth actually so…


Seth Farbman: Yeah, it was a long time ago, but just for everybody’s benefit, EDGAR is a 24/7 thing with insane deadlines and EDGAR stands for… I won’t put you on the spot.

Brian C: Please don’t. [laughter]

Seth Farbman: Electronic Data Gathering Analysis and Retrieval. But for everybody’s benefit here, I always looked at it as EDGAR stands for Everyday Go After Revenue.


Gregg J: That’s good, Seth. Not your first time, huh? So I want to take a couple minutes and just talk about the cost of an IPO, and I’m going to let each person talk about their cost both from a commission standpoint on the broker side, and then the fees on the audit, accounting, et cetera.

Ben Zucker: Yeah, I guess I’ll kick that off as the big bad banker in the room. Look the nice part about this business is… Yeah, it’s true bankers get decent fees, but they found a way to structure it so it makes sense and everyone’s incredibly aligned. We only get paid at the end of the deal. If we go through the process for nine months, we tried, we test the markets, there’s no bid from investors, we can’t get the deal done, and after nine months, we all shake hands and part ways, you’ve probably committed $25,000 to our firm over nine months. So those numbers, when you see the windfalls, those are only going to be triggered… When we show up, we deliver a full deal, the company is happy, they accept, and a deal is consummated. As a banker, when we send an LOE out to the firm, our LOE encompasses two things; encompasses our fees and it also is going to cover our counsel fees. It’s understood in the industry that the company, the issuer, they cover the cost of their underwriter’s counsel. So I hate to tell you how much someone like Ross would charge as securities attorney, but it does change markedly depending on whether you’re the securities council representing the issuer or representing the underwriter. There is a lot more leg work involved if you’re representing the underwriter. I don’t want to steal your thunder, though.

Ben Zucker: So if you’re representing us as the underwriter, then your fees for a traditional IPO probably going to range anywhere from all $125,000-$145,000, but again, you as the company are only paying that at the back end of the deal. Those counsels are working with us under the good faith that we’re signing up a client we like, we’re confident we’re going to be able to place the deal. Our fees are done as a percentage of the proceeds we raise, typically maybe 7% in underwriting discount. So if we raise $10 million, $700,000, and then maybe a percentage for non-accountable expenses, which could go off for working late nights or meals or travel, or book-building software, stuff like that that we have in-house. So again, to summarize, sorry, I’m long winded, but as the underwriter, it’s generally called an underwriting discount, the spread, think of something around 7%, and then there’s some additional expenses that could come out to a half a percent or a percent of the total deal size and our counsel that represents us as the underwriter making anywhere from $125,000 to maybe $145,000. But again, all of these monies are coming out of the back end. We only get a simple expense advance upfront of $25,000 to $50,000 that we turn right around and pay to our counsel as a retainer. So, it’s very low cost commitment from the company, which is nice, and that’s the way it should be to motivate everyone.

Gregg J: So Ross, before you talk about your fees, since Ross’ firm represents both companies and underwriters, talk about FINRA Comp and how Ben is limited in what he can get and how FINRA reacts if you’re over… They try to take too much in fees. And then obviously talk about what you charge.

Ross C: Sure. I don’t know if you guys don’t know what FINRA is, but it’s the Financial Industry Dispute Resolution Authority. And it basically governs both investment banks as well as financial advisors, and customers.

Ben Zucker: You knew that acronym. That was good.


Ross Carmel: Thank you. See, I’m following him. So even when you sign an account with Charles Schwab, you might have a self-directed account with Charles Schwab, when you sign that customer agreement, you’re actually agreeing to be governed by FINRA. Meaning, “Hey, you lost money in the market and you blame your financial advisor or the broker,” you can’t sue them in court. You have to actually file an arbitration before FINRA, an arbitration panel. It’s a self-regulatory authority that governs the entire industry. And with that in mind, they also will regulate bankers and the compensation they receive. Meaning that you cannot get a deal done, unless FINRA approves the compensation by the bank. And I would say almost on every single deal that we do, when we’re representing the underwriter or the issuer bankers compensation gets cut back slightly, and what that is, is that there’s a list of items that FINRA deems to be compensation and it’s not just the cash or the warrants that Ben was speaking of that they get.

Ross Carmel: It’s also something called a ROFR, a Right Of First Refusal or a lock-up period on which the company and its officers, directors and certain shareholders cannot sell any shares into the public market. And FINRA has its own calculation where they give a certain amount of points for each member of those comp, and that as long as you’re under around the 11, 11 and 1/2% mark in this strange calculation they do, they’ll let the deal go forward, if you’re above that, they’re going to say, “You need to reduce somewhere along those lines.”

Ross Carmel: A lot of it is also dependent upon the size of the deal, the larger the deal, the more comp the bankers can get, the smaller the deal in our world, small cap, micro cap, the less percentage comp they can get. So that’s typically what you would see in a deal, so it’s not like when you’re walking into a door and you engage in investment bank, it’s not like EF Hutton whose been reputable, nine billion dollars in transactions, but there are other banks out there. You don’t really have to worry about being gauged, let’s say, if you’re doing a public offering because FINRA will make sure before that public offering can go forward, that they’re in line with the industry standard and what’s within their guidelines.

Ross Carmel: As far as what lawyers charge and everyone hates lawyers so this is always a difficult conversation, but you know what I would say is, I built my firm on a flat fee model. Other firms do it very differently but every deal that I do is charged on a flat fee basis. And similarly because, to go back to my earlier comment, I don’t represent Coca-Cola, I know that every company that’s doing business with me and is retaining me to go public has a budget. Right, that’s why you guys are out there raising money. So I typically will structure an IPO on a flat fee basis where it’s $25000 upfront, $25000 when we file and the remainder out of proceeds of the IPO. So again, you’re not feeling the bulk of those fees until you are flushed with 15, 25, 30 million dollars of cash.

Ross Carmel: Other law firms do do it differently. Very quick story. I have… My law firm we have four offices, about 35 attorneys, we have 35 publicly traded companies or more that we represent, and we have a pipeline of 67 IPOs that we’re currently working on today which means we have 67 small cap IPOs that are likely to go public in the next four to six months, and that’s just me, that’s just my law firm, there’s other law firms obviously doing more so I want you to feel the volume of the space and how many transactions actually get done. And we structure it that way because we don’t… Our comp, ’cause we don’t want you to feel it. And we’re relying similarly on the banks that they’re comfortable that, “Hey, they’re going to do your IPO?” And that’s when we would actually get paid.

Gregg J: Seth, anything you want to talk about?

Seth Farbman: Okay. So $700,000, $200,000, get ready, $199. That’s what a transfer agent, that’s what we charge to get set up. There’s an ongoing monthly fee depending on the number of shareholders that you have, but again, it’s just typically a couple hundred dollars a month. That’s one of the reasons why I said we are the low guys on the totem pole. Our fees are not exorbitant. Of course, there are certain corporate transactions to the life of a company that our role is to help you service, whether that’s annual meetings, stock splits, corporate dividends, most of those types of transactions do go through the transfer agent ’cause we have that communication with the shareholders and those are things that we assist with.

Seth Farbman: The other reason why we’re typically on the low end of the cost spectrum is because we are able to charge the individual shareholders depending on what their needs are, so if you’re the company and you have a shareholder who decides that he wants to split up his stock certificate and gift it to his eight grandkids, that’s great for him but why should the company have to pay for that cost, so we just build the shareholders directly. And regardless, it’s inevitable where a shareholder will come in with the transaction. I’ll look at the amount of shares that he’s selling, 3.2 million dollars and what’s the next phone call I get? “Can you discount the $35 transaction fee?” I was like… It happens all the time, but yeah, so it’s generally a couple hundred dollars a month on the stock transfer side.

Gregg J: So before we get over to Brian, the big bad auditor over there. And Brian, I think this is a good opportunity for to talk about the different roles you play, one is either the auditor, two is the almost the CFO role, ’cause a lot of these companies don’t have CFOs, and obviously there’s different fees for that, is that the good thing about everybody up here is they try to limit their upfront fees, which is what you’re going to hear, and most of the professionals that we work with trying back in as much of the fees onto the IPO side, so the company is not feeling it ahead of time. A lot of firms won’t work like Roswell. Well, they want $100000-150000 up front, a lot of bankers want a 100 grand upfront, a lot of these guys are going to back in the fees. With regard to Brian and the auditor because that they’re regulated by the PCAOB, they have to remain with what’s called independence, and that goes back to the Enron days, but they have to be independent which means they have to get someone on the upfront. They’re limited in how much they can back in on the fees, if not that we’ve we’re deemed independent, so I’ll turn over to you Brian to talk about that.

Brian Zucker: Excellent. So to build on that we are not… Because our integrity, because the financial statements have to be beyond reproach, we are prohibited from having a commission if our opinion is one way as opposed to another. Essentially, we can’t get an additional fee if we have an unqualified opinion, which is what everybody wants and so we are locked in to a number of things that would not impair our independence as Greg said before such as we can’t do an audit for a second year if you didn’t pay in the first year. And the reason for that is we actually now become involved financially with you and we need to be independent. So depending on the company and depending on the assets, is it easy to value? Do you have a lot of inventory? Are the accounting books and records in great shape? Do you have memos outlining all your procedures and accounting policies? And that all gets done internally before it’s handed off to the auditors.

Brian Zucker: So the auditors are going to look for those things and the more complete and accurate those things are, the smoother and less expensive the audit fee is. I, as I mentioned earlier, run our firms, outsourced CFO function, so I actually go in on the other side. I’m an alumni of Deloitte and Pricewaterhouse, and so when those guys come in, they ask for your revenue recognition memorandum, and most people just go, What? So our firm goes in and takes care of all those prerequisites. As I just mentioned, make sure your financial statements are done, everything is valued properly, fair value on all the accountings and it’s in compliance with GAAP. And I would say for these smaller companies, our audit fees, ’cause they’re usually on the simpler side, are about $40,000.

Brian Zucker: Don’t forget you have to do two years audits plus the opening balance sheet audit. So it’s really three years balance sheets that are getting done. And for the small companies, I see quotes around $40,000. And for the larger ones, they could go to $400,000. And we’re a top 250 firm. The firms I mentioned before are probably at least double what I just mentioned. From our outsourced CFO function, we do try to get on that side a fixed fee. The audit fees are usually based on hours, the people required to be there, our billing rates and the like. But for the outsourced CFO function, we try to get into a fixed fee arrangement, somewhere between $10,000-$15,000 a month to take care of all your accounting, financial reporting, SEC needs.

Gregg J: Thank you, yeah, I think it’s very important to note the different roles there. Not a lot of firms do what Brian’s firm does, which is… Could do the CFO role or do the auditing role, but they can’t do both.

Brian Zucker: Can’t do both.

Gregg J: Because of independence, they can’t do both. So it’s very important… And a lot of these companies, especially before the IPO don’t have a good CFO in place, so we bring in a firm like Brian’s to handle the CFO role, and then we bring in an independent auditor, or we bring them in to be the independent auditor, and then we bring in somebody else to help with the CFO role. And usually… And Ben, you could talk more about this. Usually, there’s a requirement, not by NASDAQ but by the market that the company has a good quality CFO at the time of listing, but a lot of times it’s at the IPO or after the IPO. In fact, why don’t you talk about it, and then Brian, we’ll come back to you. Well, Brian, finish your part and we’ll come back to that. Let’s talk about your fees.

Brian C: Once again, the last one on the totem pole. So ours is pretty easy actually because like Ross’s and as Greg mentioned in this group, we will provide a fixed fee. Somewhere in between Ross and Seth, we’re probably anywhere between $15,000-$20,000 and what that includes is your entire IPO process. So it includes all of your alterations, all of your back and forths from beginning till you go effective. And what we’ll do is we’ll break it up typically into four equal payments so you’re not being hit all at one time.

Gregg J: It’s in the mic, yeah. So Ben talk a little about the CFO role, but also talk about… I know we’ve glossed over the timing here, talk about the real timing to get an IPO from done to finish. Can you put that up, John?

Speaker 7: I’m sorry. I’m not set up yet.

Gregg J: No, don’t worry about that. We’ll just talk through it. It’s not important.

Ben Zucker: We’ll talk through it.

Gregg J: Ben got that memorized.

Ben Zucker: Yeah, of course. The CFO role, it’s critical. It’s part of the C-suite. You want to have someone who knows what they’re doing, who has familiarity with the company, with the books, who’s been in that seat beforehand, has public company accounting experience. Look, a lot of just the blocking and tackling and requisite background that anyone would want to see if they’re going to be putting up their capital and risking their money in a company. You wouldn’t do that if it wasn’t a qualified management team or a complete, checking all the boxes, a CEO, a COO, Chief Operating Officer, Chief Financial Officer. Now, some of those titles, those get flushed out as you grow and evolve as a company.

Ben Zucker: A COO for instance, isn’t going to be critical, a chief strategy officer. A lot of these are fluff titles. But you are going to need an independent board, a board constructed of five, seven people, something with an odd number, so you can have independence across your board. There is a growing momentum towards having a minority inclusion on that board. I actually think it’s required if you want to be in California now. So those are certain trends that you could get ahead of, but a CFO, a CEO, those are absolutely going to be seats that we want filled with quality personnel at the helm to convey confidence to the market and to investors.

Ben Zucker: And now jumping to the IPO process a little bit, yeah, so when you come and get us engaged and we sign the LOE, we start what we call an all-hands organizational kick-off call. What that means is we invite basically everyone up here in the company. So if you’re a company ABC, we’ll get your whole working group list, all the management, the regular employees that are going to be helpful throughout the process. We’re going to get the company’s counsel on the invite, our team as the underwriter, our counsel, underwriters’ counsel, auditors, people like Greg, if there’s an IR firm engaged.

Ben Zucker: It’s everyone, and we set a weekly call. On the first call, we deliver this huge book to the working group list and it has everyone’s contact information. It has questions that we’re going to need the management team and the directors and officers to answer over time. It has a schedule that shows all the items coming up throughout this four-month, five-month, six-month process, and which party on the working group list is going to be responsible for handling that. And the purpose of this is organization, it’s just critical that all parts… This is a machine, and we want to make sure that everyone’s kind of rowing together and in tandem. So we want to make sure, okay, as an example, if we know our audits are going to be done and ready at the end of this month, we want to make sure we have the registration statement, the S1 draft prepared in tandem alongside those audits, so when the audits are done, we have the book ready on the side, to drop in the numbers.

Ben Zucker: So what we do is we kind of play quarterback, we organize everything and everyone and make sure that all the timelines are syncing up. If people like Ross, not to pick on you, are falling behind and they were supposed to get a draft of the registration statement to the working group list last week, maybe I’m going to start pestering Ross and sending him texts. And maybe I’ll start embarrassing him over the public working group list email where 30 people are on, I’ll say, “Ross, your team said we were going to have the draft last week, it’s now Monday, do you think we can get it in the next 48 hours?” and keep the pressure going. So that’s really what we do throughout the process, and of course we do a lot more as we get closer with respect to setting evaluation, finding the investors. But really you can think of us as a quarterback because we’re going to have to line up the calendars, make sure we’re all in sync, we’re getting the first book in then we get those comments Ross spoke about 30 days later then we’re organizing comments. Are they accounting in nature? Are they business in nature? Let’s get the response to those comments back on file as soon as possible, so we can keep working through these comments and get to the finish line as quickly as possible. Anything else I’m missing? Should I…

Gregg J: No, you pass to Ross. I think you covered it there, which is that… Again, Ben is being modest ’cause not a lot of bankers will do that weekly call. It’s of incredible importance. No matter how many times I bug the company or Ross bugs the company and says, “Hey, we need this from you to get the registration done.” It’s a lot different when they hear from the banker and the banker says, “Hey, what’s going on?” So that weekly call that these guys do, that a lot of bankers don’t do, a lot of other bankers just sit back and when the deal happens, it happens. These guys really make it happen, they really force the action a lot, which is good because…

Ben Zucker: And it’s important also because these are micro-cap companies. Most of these management teams, they’re great and they’ve built the company that we want to get public and deserves to be on NASDAQ, but that doesn’t mean they have understanding of the IPO process, not many people do. It doesn’t even mean they have public company or capital market savvy, so they’re putting their faith in everyone up here, this kind of suite of service providers to hold their hand, make sure they’re doing all the right steps to get their company to the end goal. We want to take as much burden off of them as possible, you still have a business to run, this is a six-month process, you can’t just focus on the IPO and divert your attention from running and growing the business. So we try and take as much, the collective and royal weight off of your plate as possible, to really hand hold throughout the process and kind of guide every step of the way.

Gregg J: So Ross, maybe you can talk a little more about… I know Ben, you touched on it… The board of directors, the committees and what NASDAQ requires for that. And I know you have a good example in Applied UV of a company that sort of came from here to there or maybe you could walk through… I think it’s a good scenario for everybody to hear.

Ross Carmel: Yeah. I’ll start with the… So NASDAQ requires a majority independent board, right? So what does that mean? It means that if you have five, three of them cannot be officers of the company, they could not have received over $120,000 in compensation from the company over the last two years. They cannot be direct family members of officers of the company or share… Or own over a certain percentage of stock of the company to become an independent director. And why does NASDAQ do that? They do it to make sure that there’s no funny business going on with the board, that these guys are independent, they don’t have the same skin in the game, and that they’re making decisions accordingly. Similarly, NASDAQ requires an audit committee. I would say the audit chair is probably the most important member of the board, including above the chairman of the board. They’re required to have public company accounting experience to be the audit chair.

Ross Carmel: Typically, you’ll have a nominating committee. There’ll be a chair of the nominating committee talking about nominating officers or directors., a compensation committee; they’re the ones that approve the company’s C-level executives compensation, whether that be an employment agreement, an annual bonus, stock options, all those things have to be then voted on by the compensation committee. And all those committees that I just mentioned are only made up of the independent board members. So again, they don’t have the same kind of potential conflicts of interest in making those decisions. Greg was referring to my client, Applied UV, and I actually think they’re a really good example of a micro-cap company going public and using the public markets to really grow their company.

Ross Carmel: So, this company came to me right before COVID hit. They were selling mirrors, High-end mirrors to hotels. They had a revenue of about $7 million. The owner came to me and said, “Hey, Ross, I have a great idea for a mirror that has a disinfectant at the bottom of the mirror, whereby it will disinfect sinks in hospitals and hotel rooms,” Pre-COVID. I said, “Great, sounds like a great idea.” He comes to me, we introduce him to some banks, COVID hits… Talk about great timing for a product like that. We take him public on a really small raise, $8 million IPO. Since that time… And that was in the summer of 2020… Summer of 2020. So right in the middle of COVID.

Ross Carmel: Since that time, they have raised a total of $60 million, including with my friend Ben over here, and they’ve acquired five companies. They went from a pre-revenue company to using the capital that they raised over the course of that time period and their stock as consideration to be profitable, both topline and bottomline. So, they’ve taken… He took an idea, and with that idea and using the public markets from the cash perspective that he was raising and his publicly available stock as consideration, to actually build something that was a profitable company. It’s a really good example of what the public markets can do for a small or micro-cap company that’s looking to raise capital.

Greg J: Seth, I know we’ve touched on it a little. I know you’re a big believer in LinkedIn and marketing in general and as a place, and to these guys but talk about LinkedIn and your role in helping companies with their LinkedIn and just what you believe in with LinkedIn because it’s part of the role of an IPO of getting out there and marketing and what you… The followers and getting people looking at the company.

Seth Farbman: Yeah. And this is outside sort of the hat that I have as a transfer agent. I just feel like so many companies and CEOs like yourselves that we speak to, they’re very focused on the process of going public and they don’t necessarily recognize that the real fun and games begin once you’ve crossed that threshold. You ring the NASDAQ bell, the confetti comes out, the champagne is open, and then the next day, it’s like crickets. “Now what?”

Seth Farbman: And so, the team advises you on which IR professionals to hire to go out and tell your story. And I think that we’re in an environment, sort of post-COVID even, where historically people would go to as many road shows as they can, visit as many bankers, funds as they can. And because of COVID and a variety of other reasons, the digital age has really taken over. And so whether it’s through SEO or through other channels or LinkedIn, it gives you that opportunity to be sort of… Have a conference seven days a week and really target the audience that you want to get in front of. And I think that people use it correctly from a business standpoint, but they don’t necessarily leverage LinkedIn or other channels from a capital markets perspective, where you can get in front of analysts, you can get in front of bloggers, you can get in front of people that want to hear your story and it’s really about having the passion and conviction to want to get out there, want to tell your story. And as with any business, as you’re growing it, if you’re passionate, and you have the ability to convey that excitement to your audience, you’re going to attract the right types of investors.

Seth Farbman: I had a company that came to me early on, a couple… Maybe 10 years ago, an Israeli guy, and he says, “Oh, I have this great idea, and I have this machine, and I’m going to take syrup, and I’m going to put seltzer in it, and I’m going to mix it together.” And I’m thinking to myself, “I like Starbucks. I like Coco-Cola.” [chuckle] This is… I like… “Good luck.” Of course, we brought him on to provide the services but in terms of his prospects of becoming a public company, if I knew to believe… In which companies to believe in and which companies not to, I’d have Ben’s job. [chuckle] Anyway, fast-forward, his company was SodaStream, which is like 2$, 3$ billion dollars’ worth of capital market valuation. And so, it’s just a matter of really being passionate about your story and then having the right platform to tell it on. And I think LinkedIn, as Greg mentioned, is really something that’s not utilized enough by publicly traded companies.

Ross Carmel: Yeah, there’s one other thing I wanted to bring up in regards to raising capital after you’re public. Once you are a publicly-traded company, the ease to raise capital is incredible. And Ben can speak to this as well, right? Because once you have a liquid market for your shares, you can raise capital literally overnight. And Ben did an overnight deal last night, right? So, what does that mean? After you’re a publicly-traded company for 12 months, you become what’s called Shelf or S3-eligible. And S3 is a different form of registration statement than your IPO. You draft that S3, it basically pre-registers shares for your company, and it sits there until you’re ready to hire someone like Ben to use it.

Ross Carmel: So, a really good example, I had a… I have a client, stock trades about $2 a share. They had an S3 sitting there, they raised $40 million in 24 hours because they were S3-eligible, their stock was really liquid, meaning there was lots of volume, and the bank was able to step in and say, “Hey, your stock’s really liquid, we like the fundamentals of this company.” In 24 hours, $40 million in their coffers to continue to grow their business.

Gregg J: Brian, maybe you can touch… Zucker, can touch on the filings, the audit and financial statement requirements post-IPO. What the company’s going to have to do.

Brian Zucker: Sure. Every quarter thereafter, you have to have your financial statements and what’s called a 10Q, and we have to file those with the SEC. In there are your financial statements, do not have to be audited, just have to be reviewed by the auditing firm, and make sure that, again, everything is in accordance with all the rules. One of the things, it’s what’s called a MD&A, a management discussion and analysis, where the company will essentially tell the entire story of the quarter. “What went up? What went down? What did we do with the cash?” and they just discuss those types of things. So that’s… And then ongoing audits every year in the 10K, and… I think that’s pretty much it.

Gregg J: Brian Cavalli, you want to talk about your role on going post-IPO in terms of the filings.

Brian C: So really what we do is we’ll take the information from once again the working team, those Qs and Ks. They have to use that special language again, the EDGAR. And we will file with the SEC, and at that point in time, just like with your offering, it will get sent to us, we will send it to the SEC, and then we will send confirmation to the entire working group saying that the SEC has it and then we get to wait for next quarter to do it once again.

Gregg J: I’m going to open up these questions now to the whole group just in general. We’ve touched on it a little but maybe somebody wants to take the lead and talk about what the advantages are of being a public company, other than just access to capital. I know there’s a lot of pros and cons there. And there are cons because of the costs and the disclosure requirements. But if anybody wants to talk a little about the pros and cons of going public. [chuckle]

Ben Zucker: You get to pay bankers. No… I think something that was initially teed up here, and Ross gave a good example of it with the AU VI is these companies aren’t just going public while they are admittedly small because they’ve tapped out their own resources for going public. And I might have said that and I meant that, but there is a whole other reason, and that is because of this acquisition angle. And Ross gave a good example. And we had another one with a public company called Troika. It was a media company, a real company, 30, 35 plus million dollars… But they got hit during COVID and they wanted to go public, and we told them, “Look, your financials just kinda went down and took a little rocky patch, let’s wait and we’ll get you a little bit of private capital for now and we’ll take you public once your financials have stabilized, we’ll get you a better valuation.” And they go, “No, no, but you don’t get it. We want to be public because part of our growth strategy is acquisitions, and once you’re public, you can use your stock as currency and grow exponentially.”

Ben Zucker: So, this company Troika in the media space with $30 million of revenue just three weeks ago, it’s David and Goliath. They just bought a company doing $300 million of revenue, literally 10 times the size of them. Now, we worked with another bank, Cantor Fitzgerald to line up a $75 million debt piece. Our bank raised them $50 million in a convertible preferred structure so we got creative with the structure but that’s one of the huge drivers of being public. It’s not just that you can access capital on a whim when you need it, like again Ross said, just… If your stock’s up and you want to lock it in, you can raise 10, 15, $40 million overnight. But if part of your vision or your growth strategy is going to be driven and fueled by acquisitions, having a public company currency in the form of your stock to use just makes you a very kind of dangerous force out there because you can buy companies.

Ben Zucker: You don’t have to look at companies that are small bolt-ons, you… Every acquisition you look at can be transformative and any one of those can now put your company on the map. So, this company Troika, it’s a great relationship. It’s very possible on their next deal now that they’re a $350 million revenue company, banks like Morgan Stanley are probably going to be knocking on their door for the next deal because they bit the bullet, went public, maybe not during the best market, but they had a vision, a plan, they knew they were going to look for one of these huge acquisitions, and they finally lined it up. We lined the capital up behind that, and now this company is on the map, whether you like it or not. And that was an opportunity that never would have really availed itself to this management team of Troika, had they been private. They never would have been able to pull off an acquisition like that. So, it can really help kind of catalyze a company’s growth plans.

Gregg J: So, we can… We’ve touched on raising capital at what should be better valuations in the public market. Or maybe you know you have access to capital through debt or through other private sources, private equity that you now have access to through the IPO process but another use of the money… And Ross, I’ll let you talk about this stock option plans and being able to use that stock as currency to bring in your employees. But Ben you were touch on something?

Ben Zucker: Yeah, I was also going to say debt if you’re a business that requires debt in any way, shape or form, secured line of credit, warehousing factor, what have you. When you’re a public company… When someone’s giving you debt, they’re underwriting your credit worthiness and how likely you are to pay back. When you’re public so you can access the public markets to raise capital very quickly, you generally see a meaningful reduction in your borrowing cost because now you’re viewed as more credit worthy because you have access to that capital. So, if you were faced with an event of default, you might not want to raise capital because you might not be happy where your stock price is, but you can. And if the questions, are you default or you raise capital at a price you otherwise wouldn’t have, you have that option available. So, you become much more credit-worthy and your borrowing costs also go down pretty meaningfully when you’re a public company, just for whatever that’s worth.

Ross Carmel: Yeah, the other advantage is the ability to attract talent. To be able… The ability to attract a CEO, a COO, a com, if you’re a CTO, your stock again is currency. So maybe you’re paying a salary of $250,000 but you’re providing them a million dollars in equity or milestone achievements for them to earn a couple million dollars in equity. When we create a stock option plan for you, it gives you the ability not only to issue options, but also restricted shares.

After you go public, we will then take your stock option plan and file what’s called an S-8 registration statement, which basically registers your stock option plan. And what does that do? It allows all of your employees, not just C-level, everybody, to now sell their stock or the options that they have received and get liquidity immediately. So, you’re now rewarding your entire team from C-level down to your secretaries to whoever it might be that’s gotten stock options, they’ve now made probably significantly more than they made just based on salaries or cash bonuses, because they can sell their stock directly into the market and provide for their families.

Ben Zucker: That’s a great point.

Gregg J: Seth, Brian… Yeah?

John Newtson: Can I jump in to this…

Gregg J: Of course, absolutely John.

John Newtson: It’s funny because I have a ton of questions but…

Gregg J: Go ahead.

John Newtson: Directly to our industry, what they just talked about. Think about a couple of fundamental things that have happened in our industry. One of the problems for scaling, and one of the things that Agora has been able to do more than anybody else, is they’re able to finance their acquisition. They’re able to sit there and when the market’s down, they can buy up a bunch of traffic and wait 12 months. But like a smaller publisher media, even at 50 million, it’s really hard to do that.

John Newtson: And so, the idea of being able to raise capital as one of the solutions for that on a scaling basis is huge. It’s the ability to actually acquire customers, especially we can have a market downturn. Anybody who can acquire customers during a downturn, we know has exploded right afterwards. And then the stock options thing, think of it… Think of what happened with the AF. You had a private company, 300 and plus million, and it imploded because of equity arguments between the owners and the managers, and they didn’t have any of that. And literally it went from 300 plus to, I don’t know, what is it like, 50? If that… In a matter of two years, because they lost all of their management team and they didn’t have anything like that because it’s private so just in our space, you can see the impact of some of these things. And then you think about the accelerator down in Jacksonville. Remember when Marco from MarketWise came? So MarketWise is a group in our industry who went public with a SPAC a couple years ago at about… I think they’re valued at… What was the valuation, like 3…

Audience Member: Three billion.

John Newtson: Three billion at first. They floated 20% of the company. And the reason they did it… One of the main reasons they did it is they were trying to go on an acquisition spree but nobody knew who the fuck they were. And so they weren’t getting calls back from investment banks ’cause everyone’s like, “You’re a publisher who says you have 500 million in the bank and you’re in Baltimore? You might as well be calling me about your Nigerian Prince.” And so they literally couldn’t get anyone to answer them. And so… They tried to put money in Escrow on a deal, and they still weren’t getting callbacks on things they we e trying to acquire. So they tried to… They were like, “We have to build a public market record. We have to go out there.” And so a big part of their strategy required that they come out there and go public and make a big splash and say, “Hey, we’re a real company.” And so that was one of the driving parts of that decision.

John Newtson: And so all these things have direct impact across our industry. We’ve seen like… We’re all mystified at the AF problem. It’s kind of like a strange thing to see but the lack of an options package for employees. Even some of the other groups here who’ve lost a huge amount of talent, there’s been a huge talent drain, because people… Why? They don’t have equity. They don’t have a pathway to equity. And so that, I think, is a really critical thing to think about. And then the other piece is we’ve been spending a lot of time in our industry the last two years or I have, anyway because I feel like a canary in a coal mine sometimes talking about acquisitions. And we’re thinking about it from an exit standpoint most times. But it is, I think the… ‘Cause the exits are really low on a publishing model by itself. It’s one and a half, two if you’re lucky. But we talked a bit about increasing valuation by going into the platform models and things like that.

John Newtson: But when you have a strong business, the ability to be the acquirer, that story of going from pre-revenue up, that’s a fascinating story. And I always bring up the story of Saatchi & Saatchi. They were listed on the LSE. They became the largest… At the time, he largest ad agency in the world by doing exactly what you guys are talking about, which is using their stock as currency and going out and buying other agencies. And they just kept aggregating the smaller players, and that’s how they became the largest ad agency in the world at the time.

John Newtson:  And so, I think the thing with the digital entrepreneurs in general and entrepreneurs in our space is you just don’t have the know-how and sophistication on capital markets to even know that these things are possible. But you’re operating businesses… Think about the average publisher and agency in this room compared to… And I hate to say this on video but compared to Real Vision, who’s raised… What? Like 70 million at this point? And have… From a subscription business standpoint, they can’t touch most of you.

John Newtson: But they have that experience and those connections and so that’s part of why I wanted to have this conversation with everybody, is that these opportunities, they open up a whole new set of opportunities in your business. So sorry to go on a tangent, but I think it’s a really critical thing to tie this directly back to publishing in general.

Gregg J: John, if you have other questions, go ahead. Let’s ask them now. Get them started. Kelly…

John Newtson: Let me try to organize… One is… When… First, so let’s say I have a $25 million business. I’m a single operator, maybe I have a partner. You talked about all these boards and committees. What is that preps… You have the audit, which obviously you need your financials in order. I understand that. But what’s this preparation process look like to get the governance in place to go… And if you’re talking about the independent board only having a relatively minimal amount of cash and stock, how do you find that board? Why are they willing to be involved? And just talk about the governance piece for a little bit and how you prep to be able to be in a position to go ahead and go public.

Ross Carmel: Sure. So, from the governance standpoint, what I would say is, for the independent directors is, one, typically, you don’t need them in place until right before the IPO. You want to get them lined up. You use guys like Greg, even guys like Seth, Ben, myself, who just because we’re in the space, we’re happy to make introductions to board members that might fit your business and fill certain roles like the audit chair. From there, once they’re on the board, they’re getting compensation. It’s a look back for the independence issue. So, depending upon what space, the…

Ross Carmel: It usually… Audit chair usually gets paid the most because, again, they do a lot of work as it relates to the financial statements and the Qs and the Ks and approving everything. And it usually looks like a mix of stock and cash, or options in cash, or options stock and cash. It really just depends. And typically, when a client comes to me, “Well, how much should I pay for my audit chair?” I’ll look at other companies that are in similar market cap and I’ll say, “Hey, here’s what my clients in this market cap are paying their audit chair. Here is what my clients who are maybe a higher market cap are paying their audit chair.” And what’s nice is all of these things are publicly available. This isn’t a secret. You can see exactly what everyone is being paid, that is part of the public company ’cause it’s part of your disclosure requirements.

Gregg J: And Ben talked earlier about everything being done simultaneous. We have three to six months to get the IPO done, depending on how long the audit takes to get the IPO done. This is part of the process. Every single person up here has contacts that can fill out the board from a capital market standpoint. Usually the company itself, even if they come to us and they just have a CEO and the CFO, and they don’t really have a board, but they have people in the industry… We can then find people that have the audit committee experience, have been on NASDAQ boards, women or minorities that can fill those roles to meet those requirements.

Gregg J: And we have the time. The three to six months let’s call it, to fill out those board seats. And we use that time. But usually, like Ross said, the board doesn’t really come into plays… We’ll let NASDAQ know who they are, but they don’t really come into play until the IPO happens. So, you’re not really taking on those costs ahead of time but we’ll figure out who they’re going to be, and that’s a big role here. .

Seth Farbman: And a lot of these board members, their mindset is that… First of all, many of them are the type of people that they’ve already had previous exits, so they actually look for board seats. I have senior level people that call me all day… Time saying, “Hey, do you have any extra board seats available?” Different companies… They’re actually out there looking for this. It’s not like you’re taking them away from their main day job. And lastly, go figure… The mindset of a lot of these people, they really just want to help other public companies. They’re like, “Well, I struggled. I had nobody to turn to. I came out on the other side. If I can give back to another struggling… Or a company that’s going down this path, I’d really like to just give them the advice that I went through.” It’s not about the money necessarily.

John Newtson: Awesome. And then another question I have then is, thinking about it from the entrepreneur’s perspective, I have a friend who… He built a company up to a couple $100 million, he went public. Eventually, he ran into… He was like, “This was my first time as a public company CEO,” he ended up like, “I didn’t even realize on the compensation side that I need to report this stuff.” And it was just very illustrative that understanding the difference between running a private company and a public company. What’s that learning curve, do you think, look like in terms of just an average entrepreneur?

Seth Farbman: Like a deer in headlights.


Ross Carmel: Listen, it takes time. It takes time to kind of understand what it’s like to be a publicly traded company executive, which is why you want to make sure you’re surrounding yourself with people that have done it before. That goes back to these professional board members who will guide you as far as, “Hey, what’s okay and what’s not okay?” And one of the downsides of being a publicly traded company versus a private company is the disclosure requirements. Anyone can see exactly what it is that you guys are making, everyone knows what your revenue is, what top line, what bottom line looks like. It’s all out there. The CEO’s bonus is out there, the CEO’s stock options is out there, their salary is out there, for the entire C-suite, it’s all publicly available. So that’s a little bit different than being a private company.

Gregg J: And I think a big part of it is bringing in professionals like this that have been through it and know the process. There’s… And Ross, you talk about short-swing rules, there’s rules in terms of when they can trade, there’s blackout periods. And so whatever… It’s a disclosure, whether it’s on the financial state requirement with Bryan and the independents, every one of these professionals can walk you through it. If you’re doing it blind, you’re in trouble, but if you have professionals that not just are filling their roles, but actually doing a little bit more, which is what everybody here does. We’ve talked about the weekly calls, it’s more than just banking. It’s actually taking you through that process and making sure it happens, making sure you’re staying compliant, because a lot of these guys are great at what they do. They’re not public markets, they’re not capital market people so it’s a big role.

Ben Zucker: And that’s a lot of what we do. We bill ourselves as a full-service investment bank, and there are other banks that will just raise you capital and there’s nothing wrong with that, and then they’ll say, “Congrats, good luck on your day, enjoy the $15 million and maybe our paths will cross again.” And this goes back to the element of aftermarket support, IR, media. Never miss a chance to engage with the street and your investors when you’re a small company because all of those shots are critically important because you’re not large and a billion-dollar company that’s covered by a dozen analysts. At EF Hutton, we do have a research division, it’s totally independent. You’ve heard the term the Chinese Wall, so I don’t directly interact with these people, everything is chaperoned. But that’s part of our pitch when we’re meeting these companies.

Ben Zucker: We know how important life after… The IPO is a big event, but it’s step one in another 50-step dance. We want to be involved and the whole team to be involved afterwards. We continue to have an update call, but now it’s maybe every six weeks after the IPO, just as an update. “Hey, how’s the business looking? How is the deployment of capital going?” Our research analyst who is going to write is hopefully going to pick up coverage and start writing quarterly update reports. He provides price target, financial model and starts being another voice for the company to engage the street as an independent analyst covering and valuing, and again, adding publications under the company’s belt. And that’s when we’re the most potent, when we’re all working together. We get on these calls and maybe a CEO who doesn’t know better says, “Yeah, stock’s doing well. I think I might sell a little,” and then someone like Ross can come in and say, “Oh, actually, you’re right around your year-end report, you’re in a blackout window, you’re not allowed to sell.” It’s okay for… Again, it goes back to what we’ve been saying. This is the team, we’re going to…

Ben Zucker: You do what you do best, let us stick to what we do best, let the whole team keep working for you and we’re going to catch your mistakes and you’re going to catch ours, and we’re all going to kind of self-check and regulate each other, just understanding no one knows the whole process perfectly.

Gregg J: I can trust you guys, and I probably won’t but that… Once the IPO is done, once you’re on NASDAQ, because that’s where I think a lot of what you guys do can really come into play here because a lot of companies think that you’re there, you’re on NASDAQ, and everything is great. Ivan, you can talk about it right now, we have a Greek pharmaceutical company that listed on NASDAQ about 45 days ago, and Ivan has weekly calls, or I should… Daily calls with the management team trying to explain to them that, “You have to get news out there, you have to have information out there,” so it’s… The process is just starting when the IPO is complete.

John Newtson: I want to come back to the news flow question, but Marin, you have a question.

Marin: I got a quick question for you guys. So, with Gensler’s recent news release on Net Zero and Scope 1, Scope 2 footprints, apparently you said that every company that’s going to be IPOing, I don’t know if it’s 2022, 2023, has to disclose their carbon footprint. How does that factor into the equation? Is that more of like an audit thing? Who do you hire? There’s nobody in the industry that does this kind of stuff right now.

Brian Zucker: There’s mostly standard footnotes and a schedule that, I think, is going to be implemented to… There will be a standard disclosure. They put out guidance, the AICPA puts out a booklet every year about the current trends and the likes. AICPA puts out pronouncements, so, I saw a couple of templated type things, but I could probably get back to you if we don’t have a better answer here. But I can see that…

Gregg J: We don’t know, it’s a new world.

Ben Zucker: My guess is next year, we’re going to need one more seat up here, cause there’s going to be an additional service provider added to the mix, it sounds like.

Marin: Because if you’re a small company and you’re making 10, 20, 30 million dollars a year, if you’re in the energy business, you got to figure out how to… What your footprint is, who you’re selling to, where your energy comes from. Biotech company, are you buying coal in Ohio? Or are you hydropower in BC or Quebec or something like that? It does sound like there’s going to be a whole new seat on the board and a whole new set of 100 grand here, 150,000 there. [laughter]

Ross Carmel: It could be. And the problem is, we just don’t know yet, right? It’s all… It’s a brave new world. There’ll be guidance put out not only by, like Ryan said, from the accounting side, but the SEC will be putting out guidance as well to help companies along, and likely there’ll be a significant transition period to allow these processes to be put in place.

Gregg J: We get caught up pretty good and pretty… The China rules with regard to, recently over the six months, 12 months have changed significantly too, and so it’s… The goal posts are constantly moving by the regulatory, whether it’s SEC, NASDAQ, etcetera. So, you sort of move with the goal post and hire who you need to hire. Again, the independence was… What is that? 10 years old? 15 years old? Before that, he could have drafted your financial statements and been your independent auditor. You just go with the flow.

Ben Zucker: It’s a great question though, and sometimes the regulators throw you that curve ball. Literally, there has been one Chinese-based, PRC-based IPO since July of 2021. Literally, I mean, they just threw up their hands, they said, “All this stuff with data privacy, the variable interest entity, VIE, structure, and we don’t trust how they’re data mining,” and there has been one IPO, I think Meihua, or something like that, that’s happened, and we’re coming up on one year. Think about the backlog and the amount of mandates our bank, any bank, large banks as big as Goldman Sachs had going on with companies based in China, and that’s been a standstill. So like, these hurdles do happen, you find a way to kind of evolve, get around them. And we actually hired an ESG banker from BlackRock to start coaching companies that want to take this seriously on how to actually not just greenwash, right? Where everyone says “We’re ESG,” but we’re not, but actually how to show it and try and argue for a premium valuation when you tell your story to the Street, because of how you’re incorporating it. It’s a great question, and we’ll always have to evolve with it.

QUESTION Adam: A few minutes ago, you were talking about a company, I believe, that had just gone public 45 days ago, or somewhere in that timeframe, and you were talking about the importance of getting that stock story out, that company’s story out. I think last night at the bar with Ivan we were talking about a… Or you mentioned a quiet period, somewhere around that listing, so would it be an advantage to sort of set a precedent of a certain level of content and engagement with retail markets at a certain period pre-IPO, so that you’re able to continue a certain level of engagement throughout that process?

Ben Zucker: This is when we say, we always defer to our counsel. [laughter] So we don’t get into trouble. [laughter]

Ross Carmel: No, no, absolutely. Right, there is a quiet period and the quiet period technically starts when you file that S1 for the first time, but as long as those press releases are in what’s called the ordinary course of your business, and are in line with press releases that you were putting out prior, you can continue to put out those press releases. The things that we would avoid are things, obviously, directly related to a public offering, right? No press release talking about, “Hey guys, we filed our S1, we’re going to raise $50 million and we applied to NASDAQ,” none of that stuff. If you’re just talking about your business in general and the growth of your business, you could basically continue to do that, again, as long as it was in the ordinary course prior to the quiet period.

Gregg J: But we do recommend… And Ivan, I don’t know if you want to touch on this, is the fact that they get out there and start figuring out their story, building their website, building their brand before the IPO happens, so we’re not starting to chase that after the IPO happens. At least 60 days out, we recommend specifically the website, but really they just get themselves ready for marketing even though they might not be doing, they’re not going to be throwing out a bunch of press releases; A, because of the quiet period, and B, because it just doesn’t do that much while you’re a private company. But you get yourself ready for becoming public. Ivan, you want to start on that, touch on it a little?

Ben Zucker: Also, the flip of that… Sorry, Ivan. The flip of that works as well, and that’s when you get really creative. Your question was kind of based off of, “We just IPO’ed, we can’t help that, and now this news event happened that we want to tell, and we would ordinary tell… Ordinarily share, but we’re so close to the IPO. Can we?” And what about the other similar question to that is, the IPO was six months ago, the stock isn’t getting a ton of daily volume, how do I engage the Street and get more eyes in there? And that’s when I start telling CEOs, again, with counsel’s blessing, manufacture news. What does that mean? I don’t mean fake news. [chuckle] I say, “Make up a fake milestone that you know you’re about to hit, and then when you cross it, press release it,” have you…

Ben Zucker: ‘Cause I see their financials who are under NDA, maybe they did $4 million last year, and then it’s October, and they tell me, “Oh, we’re about to be at $5 million already this year.” Well, maybe that’s a… Let’s see if council will let us say we crossed $5 million of revenue for the year for the first time in history, people will see its only August, they’ll know you’re growing, you’re trending great, and maybe the stock gets a nice little pop from that, it’s… You want to get creative ’cause you got to just… When you’re a micro-cap company, you need to be engaging in the street, whether it’s retail, non-deal road shows. As much as possible, a CMDC, we’ve all watched it. How much time do they spend talking about it with the CEOs, of $25 million, $50 million micro-cap companies? I mean, I have it on all day…

Gregg J: Never.

Ben Zucker: Never, right? It’s the same cast of characters and large liquid companies. So, you’re fighting for that airtime and that viewership time, so having an IR campaign, having analysts cover you, you need to take every shot on goal to get your message out there. We recommend it, we tell companies, “We are raising you this money, you should be taking a portion of this money and engaging in IR firm, day one, and we can make as many recommendations at various costs and equity comp structures that you want, but you need to do that because you will just be swimming against the current as a micro-cap company if you are not prepared to be very vocal and start engaging with the street.”

Ivan: I’m kind of listening to this similar… From a similar point of view. I think you guys are… I’ve spent 30 years in marketing and almost exclusively on the public side, so about six years… Sorry, the private side, till about six years ago. And one of the things I’ve learned coming into this world, which is, I think, very apropos to you guys coming into this world is, in the micro and small cap markets, the CEOs and the C team of that company know as much about going public as anyone here in this room that hasn’t gone public. And so when you listen to the process of going public up here, you hear it’s full of compliance and restrictions and legalities and big chunks of money that you’re not used to spending and then a whole another… You’re basically running a parallel company inside your old company, and that’s dealing with the capital markets. They didn’t expect or know about any of that.

Ivan.: So, what we’re doing… At Exchange Listing, we’re literally right now focusing on putting together a pre-IPO package that prepares a company as far as six months ahead, to get into the customary and normal paradigm of what they want to continue during the quiet period and build off of once they are out of the quiet period. And these companies don’t have any idea what it costs to market into these businesses, marketing to investor, to get investors interested and knowledgeable about the company in a way that’s fully compliant is very expensive and time-consuming, and very different than consumer marketing, which is what these companies are used to doing.

Ivan: When I say very different, there’s funnels, there’s processes that sound the same on the surface, but when you sit down and try to market to an investor, it’s a much different marketing process. And so, I think the most important thing is understanding where you guys fit in, when you fit into these processes, and the role that the company and the bigger marketing experience is going to be looking at you for, or counting on you guy’s databases for, and your knowledge, and your focus, and figuring out how to dovetail into this bigger process. I actually chose not to sit up there with these guys because I didn’t want to get into details today on any of that, but if anybody wants to talk about it, I’m around later also, and I’ve spent the last six years learning this and it’s been really fun and it’s very different than… It’s not intuitive at all levels.

Ben Zucker: And the whole investor relations paradigm has changed, it used to be traditional print, “Let’s help you write your quarterly earnings release, press releases, and maybe transcripts if you’re going to host a call. And great, you have one or two press releases during the year, we’ll write them and distribute them for you.” It’s now taken on a totally new frontier and landscape in the digital world, and even myself now, if I see a stock moving, first I go to their website to see if they put out a press release, then I go to EDGAR to see if they put out an 8K. And if they haven’t done anything meaningful, I go to Twitter as my next stop to see what’s going on the board.

Ben Zucker: And I think we’ve all seen that with Reddit and Wall Street Bets, what happened with GameStop Stock, a company that should have gone Blockbuster, had no business model, the internet took a hold of it and now you have these terms like Meme Stocks and stuff like… One of our companies, it happened to them. We IPO’ed them at five, they went to 20 with no revenue and back down to five. We had a company at $3 a month ago, they went to $81 two weeks ago, and now they’re back down at $50. Sometimes, these crazy rides happen. But now you have IR Firms that are focusing on, “How do I hit the digital media?” “How am I helping to drive daily volume by finding these… ” It’s amazing but it’s…

Ivan: 20% of the money now that’s going into companies is coming from retail investors, the A-graders, retail investors.

Ross Carmel: Think Robinhood.

Audience Member: Yeah.

Ivan: In my opinion, and you guys can definitely be more accurate than me, but I will guess 50% of the daily change in stock and volume is created by retail investors. And…

Ben Zucker: Retail used to be made fun of by main of, they used to be mocked as too passive money, and now they’re a force.

Ivan: Is why you guys, I think, should be interested in this role, because you have so much influence on the retail side, and that retail side is just rough. And you said yesterday, you know, people think that the internet was in 1990, everybody was using it, they’re just starting to use it in these sectors. It’s in its infancy.

John Newtson: Anyone else have any questions over there?

QUESTION Joel: First, thank you, gentlemen. This has been very helpful. I appreciate your time coming out and doing this. Can you just real briefly, top two, three, when you’re doing audit, what are the typical issues you see?

Brian Zucker: The owner’s… Am I on?

Seth Farbman: You’re good.

Brian Zucker: The owner’s wife is his CFO, she’s never taken an accounting class in her life, doesn’t know the difference between accrual and cash basis. That’s one. So, it’s really… Doesn’t have to be his wife, but I’m saying in general, just having the expertise that we spoke about before. Number two, a big thing is, is before you get to the IPO, money becomes an issue from time to time, and you will get offered opportunities to get convertible debt instruments. Those convertible debt instruments are considered sometimes as derivative liabilities. They have to be calculated in a very sophisticated way, they have to be valued, fair valued, sometimes by an outside valuation expert, another 30 grand to add to… So, the more complicated, the more of them and the amount of them can add a lot of time to the audit to get those valued. Just overall accounting issues and presenting the company in a way to auditors, to the regulators, that just reeks of, “I got this covered. We’re taking the right steps. We hired somebody who has SEC experience, we have SEC council, we have those things and surrounded ourselves with them.”

Brian Zucker: The things that are going to be looked at and looked for are going to be self-evident and you’re going to have a positive experience. If you wait till the last minute on some of these things for when money shows up or don’t take it seriously, or a lot of self-dealings have become a problem over time in where the owner sells the building where the headquarters are at some ridiculous amount to the company… A lot of things like that happen. But yeah, the earlier you get the accountants involved, the more experience they have, it’s not as bad as we’re making it out to be, but we do want to just make sure that those problems are… The investors want the deal at a certain time and we are still waiting for responses back to certain of your original family and friend investors, and they’re not response… Just things like that we can’t confirm. So it happens, it takes longer, not because we don’t want to get through it, just because the information we’re waiting for has not arrived, third party information, and again, the valuations of the assets and liabilities take time and have to be right.

Joel: Understood. Thank you, sir. Last question, I know the board has to be majority independent. Is there a minimum member number? Three, five, more? No such thing, or…

Ross Carmel: Five.

Joel: Five, okay.

Gregg J: And most of the companies we work with have five, you can have… First of all, it can be the even number, just doesn’t make any sense, ’cause then that leads to a problem. But we’ve seen some with seven and nine at the small-cap level, but really five is the number of people to shoot for.

Ross Carmel: And the reason you don’t go… The reason I always recommend don’t go any higher than that is because you have to pay for those people. And it becomes more difficult to coordinate schedules, get everyone on the board call, who’s available? Who’s not available? Get a quorum together, so things like that.

QUESTIO Jason: Yeah, so a question for you on the different types of scales of companies you’ve worked with. It sounds like it really runs the gamut, but I’m kind of interested, what are some of the… Some more examples of the most bare-bones, say like the soda stream idea, it really sounded like this is just a guy with an idea, or do you have other examples where maybe it’s a couple of people, they’re pre-revenue and it’s an idea, and can you speak to some of those stories?

Gregg J: Seth, why don’t you talk about EVTS? It’s a good one. We’re not there yet, but… We’re never a company to have and there’s a million of ’em.

Seth Farbman: Yeah, there really are a million of them. I think that there’s this misconception. There’s a misconception both ways, there’s a misconception that, “Well, to go public, I have to have tens of millions of dollars in revenue.” And then on the flip side, when I speak to some of the attorneys at larger firms or… Like, “Why would a company go public for less than $300 or $400 million?” It boggles their mind. And the answer is, is that it really just depends on if they’ll be able to find the capital. I think that, as was mentioned previously, if you’re in the pharma, biotech world and there’s no revenue, then that’s sort of become an acceptable standard because they’re waiting to see what develops, FDA. We had a company go from, I think, $40 to $400 per share in one afternoon once they announced FDA approval. My phone did not stop ringing of people just wanting to cash in on their warrants but to your direct question, and was said before, there is no revenue requirement.

Seth Farbman: So yeah, you’ve got two guys in a shared office with an idea and a dream, and the only thing that’s really preventing them from going public is, “Well, will we be able to find the bankers or the backing to be able to go that direction?” If they think that they can go that route with friends and family, then I think that that was a little bit what was the impetus for the world of crowdfunding, whereas the bankers may not have been able to take that risk, but you can gather a little bit of money from a lot of people, and the sexier the story, or the bigger and brighter the idea, the better off they may be. And so now there are different sites that allow you to get that initial capital or bridge money through crowdfunding, and then when you’re a little bit more developed, approach the idea with the real investment bankers to allow you to take the next step.

Gregg J: So, I’ll leave that up to you, Ben, now to talk about it, which is when… And you see 50 deals a day, a lot of them are non-revenue generating or start-up companies, what interests you? What makes you want to work with these companies? ‘Cause you work with some of them.

Ben Zucker: Yeah, it’s true. And again, it’s always in the back of the mind, the question you’re always just trying to solve for, is this a company that makes sense? Are investors going to get excited? Does the company belong in the public sphere? Are we going to get buy-in from uninterested parties, not their mom and pop and friends and family, but someone who has no reason to invest in here, someone who’s going to be seeing 10 different deals this week, how do we get them excited? And again, if you do have revenue, that’s a way to get people excited because you’re already proving that you have a business in place and there’s customers for that business. If you have growth, that’s great.

Ben Zucker: This is more general stuff, a market will pay for revenues or cash flow or EBITDA, and you can define that, that’s easy to camp in a market, and you look at what multiples your sector might be trading at, where you have to get more creative is when you don’t have those numbers. And that’s difficult, that’s kind of selling the market on more of a story and a narrative than saying, look, this company has $50 million of EBITDA, here’s every company in their sector, they trade within 15 and 20 times EBITDA.

Ben Zucker: We have a very good data set, a good sample size, so we’re not reinventing the wheel, it’s kind of road mapped for you where this company is going to be valued, but we’re willing to be creative, we’re willing to look at companies of all shapes and sizes, the most important thing is really the capital stack, how did you get to the point you’ve got when you’re now speaking with us today, and I think Seth you might have touched on this, there’s a lot of vultures out there, for lack of a better word, that kind of prey on companies that are running out of capital, but they have a quality business that they need to fund, and they meet you and they extend these kind of structured term sheets that aren’t good for the long-term health of the company, but a management team that doesn’t realize the nuance of these structures and just kinda sees dollar signs in front of them and, Okay, this is going to help me make payroll and live to fight another day, how can I turn down this million dollars?

Ben Zucker: We want you to meet people like us as early as possible, ’cause we’re going to protect you and we’re all going to be incentivized together, so we’d rather you come to us early and say, “Hey, I don’t actually want an IPO for 12 months, but I need $2 million or so to hold me over, can you guys find me a little bit of this bridge capital to hold me over? Let me grow the business, and then we can go public at the end of the year with a better valuation.” Why we love that? We’re going to find you a similar rescue money, but we know we’re going to negotiate the terms so that we make sure it’s not what they call a toxic term sheet, something that’s going to damage the ability of that company to IPO or uplist, right. So that’s why we want you to bring us to the table as early as possible, ’cause we all have the same end goal, we need to accomplish an IPO here, so we’re not going to be short-sighted and take a foolish $500,000 or a million dollars, if it’s going to come with structure and muddy this cap table to where we think we’re going to struggle to tell this story to the public markets.

Audience member: So is that bridge money tend to be just straight to debt, it’s not convertible, it’s not…

Ben Zucker :It comes in all shapes and sizes, as you would imagine, it can be as simple as a promissory note, which is kind of straight debt, and then they say, subject to an offering of at least $5 million, you have to pay us everything back, which is their way of saying, Yeah, here’s a million dollars, you’re doing an IPO in six months, you get your liquidity event, you have to pay us back. It can be senior-secured if there’s some kind of IP or hard asset value at the firm. Again, these guys are… Something that de-risk them, they’re happy to take a convertible note that’s senior-secured, and a lot of these times these bridge guys want to see the company IPO, so the ones that we work with, they love when we’re coming to them, ’cause they go Oh, so you guys are already engaged, this is your client, you’re going to IPO this company? And we go, Yeah, this is our client, the end goal is going to be an IPO in six months, and that gives them the comfort that they’re going to get their liquidity event.

Ben Zucker: The last thing these investors want is I’m putting a million dollars in, and who knows if they’re going to go public or I have to trust that a bank’s going to get it done, so we kind of de-risk that by saying, “Hey, we’re here to do the uplist, they need a little bit of money, you know us, trusting us to get the uplist done and we’re kind of de-risking it for the investor and helping fight for the terms that are going to make it uplist-able or IPO-able,” but it can be convertible preferred, it can be senior-secured convertible, it can be straight debt, it can be restricted stock equity, it’s really all shapes and sizes, but most investors like convertible notes.

Gregg J: But the bridge is important because a lot of people who come to us, they need something to get through that next six months whether it’s to pay for the expenses or to operationally or maybe even acquisition, usually there’s a $2 million to $3 million raise they’re looking for to cover the next six months, so if you can go to your own investors, then straight equity and a good valuation is always the best way to go. A lot of the people that we go to, the funds we go to and Ben and Ross, we all have the same relationships, they’re going to look to do a convertible note that convert at a discount to the IPO. So, if the IPO get’s down at a $5 stock price, they make it a 25% discount to the IPO, maybe have some warrant kicker, but there’s something there… But everybody that comes to us says they want to bridge; we need to know we have the banker sign up. Our investors are people, or at least we would help bring to the table, we’re not bankers or anything like these guys are, but anybody we’d bring to the table need to know that there’s an exit plan and that there’s an IPO that’s going to happen, they need the banker first.

Ross Carmel: The bridge guys are really betting on the process of the IPO and less about the company because they’re really making their money knowing that Ben is engaged, Ben believes in this company, he doesn’t get paid until the IPO happens, which means he has skin in the game, and they’ll bet on that convertible note that, hey, they’ll convert at that 25% discount they’re up on their money the day of the IPO.

Gregg J: But the bridge is key, as I said [1:40:38.4] ____ for money, not necessarily looking to go public. And they’re like, Okay, it’s great, but I need something now. I can’t wait six months, so it’s a key component to us.

Ben Zucker: More than half, and if they don’t want to go public, we’ll be very candid with them from the front, this is not what we’re primarily positioned to do, and I do not have a hide. If you are a private company, you just want to come call me up and say, Hey, here’s my company, can I get two million, but I want to stay private? Odds are we’re not going to be able to do anything together, those bridge investors need to know the IPO, the liquidity event, how they get paid back is going to happen.

John Newtson: I think it’s actually really interesting to think about our space, again, we spend all day looking at the click rates and what will sell and convert to a retail investor and what stories will convert, and… You know that. You can look at some stories and you’d be like, “There’s no way I can sell that, there’s no way I can sell that.” Then you’re basically doing the same thing, is putting together a story, and so you actually have a deep experience doing that kind of just basic research on it or analysis. And it’s like, “Well, how could I tell the story?” Could you tell it? I think that’s a good place to start. And then it’d be really fascinating actually just from a publishing standpoint, to be able to plug in to somebody who has access to all the… Where can I get capital right now? Like ESG, these other stories, and I bet you there’s a lot of just promotional ideas where you find from that side too, but is there any other… Are there any other questions right now?

Gregg J: John, I just want to touch on the state of the market from these guys, obviously we’re in a volatile market… Did I cut you off? That was your next…

John Newtson: No, that’s perfect.

Gregg J: It’s a crazy marketplace right now, 2021, I think for everybody up here was a great year, great year, a lot of IPOs, a lot of deals getting done, 2022 has been very volatile. The marketplace, the world, everything is crazier. So, I wanted Seth, Brian, Brian, everybody, Ben, to talk about the state of the market. I know, Ben, obviously you’re facing it every day in terms of people wanting to get their IPOs done, what’s the market like?

Ben Zucker: Yeah, it’s… 2022 is not 2021. We’ll probably never see anything like it, and I don’t know. I don’t think… It resembled something more like the dot-com bubble. What we’re going through now is probably… I used to be a research analyst, so what we’re going through now is probably healthier for the market, because new IPO issuance is probably down 75% year over year, which is gigantic. So there’s a lot of macro stuff that you could point to. We have a war in Europe, between Russia and Ukraine, we have inflation trending, not just higher than it has for the last 10-12 years, but even by historical standards at a dangerous level, you have… A Fed that’s posturing for tightening and 50 basis point jumps and certain duration bond yields starting to invert, so you’re getting a lot of the warning signs kind of flashing, and in that respect, some of the capital markets did dry up, so new issuance IPOs are down about 75% year over year, which is meaningful.

Ben Zucker: That said, this is healthier for the market, the pendulum always swings a little too far in one direction, 2021 was probably seeing companies that didn’t deserve to be taken public taken public. 2022 will course correct that, and we’ll always keep swinging back and forth in search of equilibrium, but nowadays the market is getting more shrewd so if you’re in life sciences or Biotech, one of those sectors where it’s understood, you’re not going to generate revenue until you’ve gone through FDA and the approval process, you’re going to get a pass there. Outside of that 2021, if you’re a pre-revenue regular company, and you’ve built an app and just told people, “This is going to work,” you got public, you got your $15 million. Now, if you have… If you’re in a real business where you should have a customer or revenue, and you have no revenue, again, not to sound dismissive, we’ll speak to everyone, but in the back of our mind, we’re already thinking, “This is going to be a tough deal unless the market meaningfully changes.”

Ben Zucker: So, from our committee’s perspective, ’cause we meet a company, we take notes, we put together a committee memo, run it through them, and then we go back saying whether it’s something we can take on is… We really are looking for a company with a little bit of a demonstrated track record, we want to see 5 million plus of revenue, if we could do it. Again, if you’re in a techy high growth industry, you’ll get a pass, but by and large, we’ve tried to put some guard rails on, look for revenues, just something you can use to kind of ground the story and how you pitch it to the street, but there is capital for higher quality companies because again, with inflation high, there’s a cost to not deploying that money so good quality deals will still get done and there is still a lot of capital in the market, I think.

Seth Farbman: Yeah, I think just to echo what Ben is saying, we were seeing… I hope you’re wrong that we won’t see a year like last year.


Ross Carmel: Me too.

[overlapping conversation]

Seth Farbman: But we were probably knocking out 5 to 15 IPOs every single month, and part of that was due to this back surge, which is now a four letter word. But I think that just to put a positive spin on it, like Ben was saying, historically, eight months ago, you would go to the bankers and they would have so many… So many choices that it was hard for you to really distinguish yourself, and now I think that especially for this audience that you’ve got that edge behind you, that you’re… I like that term you used before, digital entrepreneur, I like that. I’m going to try and use that. That gives you an advantage maybe over the next guy that’s just selling widgets or something like that, so it gives you the chance to really stand out a little bit more. I really try to find the right contacts and the right opportunities to go through this journey.

QUESTION Adam: In terms of market cycle and preference for capitalization amongst domestic companies, US-based companies, it seems like there was a sort of a shift toward staying private and finding money through venture networks… Well, not… Last year, not withstanding. Is there a difference in the appetite for capitalization via IPO or venture markets in the international markets like the Malaysian company you’re working with now, do they perceive things differently? And are international companies like a growth area for listing?

Ross Carmel: For sure, particularly Southeast Asia, and with everything that’s going on in China.

Gregg J: Sorry, take China out of the mix. Take China out of the mix.


Ross Carmel: With everything that’s going on in China, people have really focused their attention onto the Southeast Asia, whether that’s Singapore, Vietnam, Malaysia, that entire area is poised for huge economic growth over the coming years. So as far as an appetite in the capital markets in the US, yes. People, institutional investors here in the US, would love to get in early stage on some of those South East Asia companies. And by the way, those companies range from e-commerce to technology, to shipping companies, to every sector you can think of, because that’s just a high-growth area.

Gregg J: And it goes both ways. Go ahead.

Ben Zucker: Even for the most boring companies. We had a client in Singapore and they decided not to go public. They do office building maintenance, but a lot of those regions got locked down. We think we got locked down. No one was out and about there for a number of months. Oh, sorry.

Ben Zucker: So this was a company that… It’s a real business, it does $40 million of revenue. It’s not a sexy business, they go and they clean offices, they take out the trash, and they do the lawn maintenance out front. But their revenues did a nosedive, they said, “Let’s come back.” And now, just as quickly as they went down, because of the lockdowns, a lot of these South East Asia regions are now roaring and ripping back, and they’re able to demonstrate the recovery and V-shape recovery we had in equities here domestically. That trade’s been kind of felt and tired now. And now these investors, always looking for their edge, they’re very happy to put capital to an international idea, if the story makes sense, the growth is there and the valuation’s there. Capital is very happy to flow towards international companies and clients, yeah.

Gregg J: And it goes the other way. Obviously, we’re still, the US markets, we’re still the king of the world here. So, these companies are definitely looking to come here to the US. Either whether or not they want to expand their operations here, and going public here helps with that, or just getting access to the capital market. So, these companies are definitely clamoring to come over here.

Ben Zucker: Yeah, it’s not just South East. We just opened up an office in Israel, because of all the companies that wanted to be publicly listed on the Tel Aviv Exchange and here. And just had somebody spend two weeks in Dubai, just exploring companies that wanted access to the US markets also, so it applies everywhere.

John Newtson: We just had one of the people who come, Vince, he’s got a lot of distribution in Africa. And he was saying that the… It was the largest company in Africa that came to him and was like, “We were interested but we didn’t even know anybody in New York to list on the NYSE.”

Ben Zucker: That’s why we’re here.

Gregg J: And so…

Ben Zucker: They’ve got five friends.


Ben Zucker: And we have an exploration and production company. It’s based and domiciled in Houston, but they have one project, and it’s a wildcat set of wells in Africa, in Benin. They have promising data. So again, the group up here, we’ll work with anyone. As long as there’s a business plan, a team in place, and it’s viable and marketable…

Gregg J: And arguable…


Ben Zucker: Yeah. There’s really very few red lines here. Again, China and PRC is shut down. We’re still meeting issuers and happy to start the process, because who knows where this market’s going to be in six months?

QUESTION Marin: How does the sideline money with SPACs now affect what you guys are doing for IPOing? So, there’s, I don’t know, $200 billion or whatever is on the sideline. There’s 50, 60, 70 SPACs looking for somebody making revenue. They’re competing with you, to try to figure out who’s going to take the public, who’s going to reverse merge, PIPEs, all that kind of stuff? How does all that money that’s just waiting for something on the sidelines, they’re probably frustrated, like, “Okay, everything’s going up and up and up, and here I am sitting, waiting to find something.”

Ben Zucker: So great question, I’ll be a little promotional. At EF Hutton, we do a very weird thing. We focus on micro-cap world and then we’re huge in the SPAC space. When you say how huge? We’re actually number one in the world for SPAC IPOs, number of SPAC IPOs, year to date in 2022. And I’m not cherry-picking the field, that means Goldman, Citi, the bulgiest bracket banks, we did eight in the first quarter and 30+ last year. So, we know SPACs really, really well, it’s also part of our DNA. The SPAC market, again, that’s a structured product really. It’s always evolving. It’s not as cool as it used to be. It’s another example of one of those markets that everyone thought was fun. So, if you and your brother had a couple of million dollars, that’s all it took. You could launch a $50 or $100 million SPAC. It was super simple, and it was almost like the flavor of the week. The market got oversaturated. Terms have been migrating away, and this is getting really nuanced, so we could follow up later. But the SPAC market is getting much harder for new issuances.

Ben Zucker: Sponsors, it’s not as exciting or lucrative. Still a great trade if you can find a target, but not everyone’s rushing to be the manager of a SPAC right now. It’s great to have that capability, ’cause now what we say to companies when we’re pitching or baking off is, “We’re going to be able to find the capital for you in any source you want it. We can run a dual-track process. Let’s run the IPO process on one hand, but we’ve also IPO’d 40 SPACs now, so we have a direct line into the management team of 40 SPACs. If you want a SPAC and you want to try and push for a higher valuation, no problem, let me connect you with the head of our SPAC team. We’ll start lining up meetings, one by one, with everyone, with all the SPACs. And if there’s an interest and a connection, great, we’ll go down that avenue. If not, we’ll keep walking down the IPO. Both roads are going to lead to your company being publicly traded on the NASDAQ at the end of the day. We don’t know what path it can take, but we’re very uniquely positioned to walk you down both those paths.”

Ben Zucker: And as Brian would say, a lot of those paths aren’t mutually exclusive. You need to have your audits for the two years done, regardless of whether you get merged into a SPAC or you do your own IPO. So, you’re doing both processes without even knowing it. We’re able to pursue those paths.

Gregg J: And we’re the same way. When we bring on a company, we’re going to help take them public, whether it’s through a SPAC merger or through an IPO. The bigger difference is a lot of these SPACs are too big for a lot of the companies that we’re bringing to them. If you’re $100, $150, $200 million IPO, the companies that we’re seeing just don’t have the size to merge into a SPAC, they’re looking to do a smaller IPO. I know, Ben, you see some of the bigger companies that do that.

Ben Zucker: When you see $100 million SPAC, they’re normally looking for something two to three times that amount. So, it’s the definition of the tail wagging the dog, right? When someone comes to us and says, “I want to sponsor a SPAC”, we say, “Your Rolodex of acquisition targets, how are they sized?” And if they come back and say, “$350 million to $500 million”, we’d say, “$100 million SPAC is perfect for you.” Just so you understand how the sizing dynamics work there.

Gregg J: That was part of the problem with the oversaturation, which there’s too many SPACs out there and there’s not enough companies that size that can merge into the SPACs. For us, it’s good, because we’re looking for these smaller IPOS. But that doesn’t mean that there’s obviously SPAC mergers still happening every day, so.

John: Any other questions?

Gregg J: Yeah, so I wanted to dive into the little niche question about LinkedIn, as I think there’s a lot there. And you mentioned that analysts are very valuable for you on LinkedIn. But what are some of the other roles of just types of people you could find on LinkedIn, who are very valuable for the IPO process? Or maybe just for you personally? Just open that conversation up there.

Seth Farbman: I’ll just say it applies probably to every channel. I’m only familiar with LinkedIn, and I only… I’m giving this advice just because as a fellow entrepreneur, I can only offer for you what has worked for me. Frankly, I’m a bit of an anti-social person. If you go to a conference, I’m the guy that’s standing in the corner, pretending to be on his phone, [chuckle] so that I don’t have to walk up to people and introduce myself. But I found it very comforting to be on LinkedIn, because I feel like if I’m offering something of value, then that’s a great way to meet people. So if I’m posting articles about NASDAQ, articles about IPO, articles about upcoming conferences, then I’m providing value to the connections that I have. And so, as far as connections go, in the public market, I’d like to be, for myself, I’d like to be connecting to analysts, investment bankers, securities attorneys, IPO readiness people, auditors.

Seth Farbman: Everybody has their own circle of people that they would like to be in front of. I say, for example, to people, if you’re giving a TED Talks and you’ve got 5000 people in the room, who would you like to invite to that auditorium? And then just connect with those 5000 types of people, the people that would put the biggest smile on your face. And those decision makers that you could get in front of five, six, seven days a week. So again, if you’re in an eSports business and you want to get in front of the eSports community, with a capital markets spin, you can. If you’re a biotech guy and you want to get in front of healthcare ambassadors, you can. And that plays out into the analysts and to the portfolio managers, into the hedge fund managers, really whatever level of capital markets you want to connect to. And it’s just all organic and free.

Gregg J: And by the way, if you get nothing else out of this, connect with Seth Farbman on LinkedIn.


Gregg J: The best, most creative posts ever. He’s awesome.


John: Awesome. Well, we’re running up against lunch time.

Gregg J: Yep.

John Newtson: So, unless there’s any final questions, we’re going to give him a round of applause, and thank him.