In my previous seven part series “Going Public – Do You Know What to Expect” I covered the process of taking your company public through via a traditional IPO. What I mean by “traditional” is an IPO that will be raising a substantial amount of money through an underwriter and will be listed on a stock exchange such as NASDAQ, AMEX or the NYSE.

The average size raise for a traditional IPO today is over $200 million. This leaves a huge gap in the marketplace for emerging growth companies that need to go public but are not large enough to attract an underwriter. So what are the alternatives for companies who wish to go public to expand their business model? The answer may be to seek a reverse merger into an Over the Counter Bulletin Board Shell (“OTCBB Shell”).

In its simplest form, a reverse merger refers to the process whereby a private company merges into and with an existing public company to establish itself as a public company. Typically, the public company with which the private company merges has a shareholder base and some assets but is no longer a functioning business; hence it is often called a “public shell.”

The public shell is mandated to file quarterly financial reports and yearly audited reports to the Securities and Exchange Commission (SEC) and remains a public company for trading purposes. However, the shell usually trades by appointment and at very nominal pricing – usually a few pennies per share.

In years past, reverse mergers were associated with penny-stock scams which were subject to manipulation by promoters. However, after several rounds of SEC rule changes and the collapse of the IPO markets in late 2000, OTCBB shells have become the defacto IPO marketplace for emerging growth companies. Today, companies that reverse into an OTCBB Shell must adhere to the same stringent rules and regulations as set forth for companies who are listed on NASDAQ, AMEX or the NYSE. The basic difference is that a company who trades on the OTCBB does not need to meet the listing requirements set forth by the stock exchanges: namely criteria for earnings, assets, net worth, number of shareholders and minimum trading price for shares.

The image of reverse mergers as a legitimate vehicle to go public has improved measurably in the recent years for several key reasons:

• Recent new rule changes introduced by the SEC in over the last five years

• SEC proposals in May of 2007 validate reverse mergers as a segment of the financial services industry.

• There are now more reverse mergers per year than there are IPO’s.

• Underwriters are concentrating on larger and more established companies to bring public via an IPO

• IPO’s are more expensive.

• PIPE’s (private investments in public entities) and the proposed reduced six month hold on 144 stock have increased equity investments.

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