{"id":1784,"date":"2021-11-24T06:11:24","date_gmt":"2021-11-24T06:11:24","guid":{"rendered":"https:\/\/dionysoscorp.com\/?p=1784"},"modified":"2022-08-31T20:11:10","modified_gmt":"2022-08-31T20:11:10","slug":"ipo-incubation","status":"publish","type":"post","link":"https:\/\/evergrowthcorp.com\/fr\/services\/ipo-incubation\/","title":{"rendered":"IPO Incubation"},"content":{"rendered":"
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An essential attribute of a growing and dynamic economy is the methodology for pooling funds to finance new, innovative and promising enterprises. In the United States, one of the most powerful tools to pool funds is a public offering of shares through either a RegA+ or an S-1 procedure. But it is difficult, if not impossible, to raise the budget of an initial public offering (IPO). There are three types of costs involved. First, the \u201cupfront\u201d or \u201cpre-cash\u201d costs that must be borne by the company before the effective date of the IPO; these costs cover attorneys, accountants, etc. Second, \u201cpost-cash\u201d costs, such as commissions to brokers, investment banks and, once again, lawyers and accountants. Finally, there is usually a less obvious cost: the IPO process monopolises a significant portion of the company\u2019s resources and generally consumes management\u2019s attention. That is why it is not uncommon that during the IPO process, the performance of the company is negatively impacted, engendering yet another need for funding \u2013 if only to offset the pre-IPO poor sales performance.<\/p>

From other perspectives, there are two main hurdles to overcome in pooling funds from investors. From the investor\u2019s standpoint, there is the question of how to invest for a short period of time and make a significant profit. From the entrepreneur\u2019s or company\u2019s point of view, there is the question of how to finance a large transaction and manage the investors\u2019 expectations and shareholder rights, especially in relation to management control and remuneration.<\/p>

Solving this problem is the same as rescuing a stray puppy: get control of the stray (create a key term sheet signed by all parties); provide it with care and attention (assist management in the IPO process); foster it (provide the necessary funding); and find it a permanent home (see it through to listing on a public exchange).<\/p>

When acquiring or merging a company, it is possible to use the cash of the target company to pay off investors. Developing a financing plan that turns the IPO process into a merger can satisfy the investors\u2019 desire for a quick turn of profit, and enables the entrepreneur to keep control.<\/p>

Definition<\/h3>

A fundraising incubator company (an incubator) is incorporated in the state of Delaware in the USA. It is a traditional financial company that, depending on its structure, may or may not be required to register with the Securities and Exchange Commission (SEC) under the 1940 Investment Company Act. This company finances corporate transactions, such as an IPO, in return for an equity participation and a put option for an equity participation in the company to be financed.<\/p>

The incubator could also finance other types of transactions, such as a merger, acquisition, securities private placement or any other kind of transaction, as long as in the end there is a sure liquid market that is able to absorb the purchase of the incubator\u2019s equity participation.<\/p>

In the SPV, all assets of the company or group seeking IPO financing must be consolidated together so long as owner\u2019s name recognition is not sacrificed<\/p><\/blockquote>

The put option, issued by the same issuer as the equity participation, ensures the investor that, if the transaction is successful in the case of the IPO, it can resell this participation to the issuer immediately afterwards. Of course, this assumes that the cost of repurchase is anticipated and included in the amount of financing obtained by the corporation in the transaction.<\/p>

Today, transaction financing is rare to the point of being exceptional. It remains the exclusive privilege of large investment banks, who reap huge profits therefrom.<\/p>

Foster<\/h3>

This situation is why I invented a new combination called Foster. The principle is simple: a special vehicle company, or special purpose vehicle (SPV) is incorporated in Delaware. In the SPV, all assets of the company or group seeking IPO financing must be consolidated together so long as owner\u2019s name recognition is not sacrificed. This credibility issue must be studied case by case.<\/p>

The incubator\u2019s team of lawyers prepares a \u201cRegulation A+\u201d disclosure document for the incubator. This disclosure document states to the investor that the incubator is an investment company that finances IPOs of any size, against a share of the capital prior to the IPO and a pro rata share of the raised funds payable after the IPO. This document offers the investor three ways out of investment:<\/p>