Where Did The OTC Graduates Go?

otc-uplists-by-year

Last week, Acquis published the 2016 OTC Markets’ Graduate Review and the data was very interesting.

According to the report, 35 companies uplisted from the OTC markets to the NASDAQ, NYSE, or NYSE Mkt in 2016. That’s a huge drop from 2015 (60 uplists) and an even bigger drop from the average (80 uplists) of the five previous years!

I don’t have a definitive explanation for large decrease in graduates but I do have two theories;

1. More Private Capital – Private capital providers like venture capital, private equity, and angel investors have seen huge growth in the last few years. Even more traditional investors are getting in on private company investing. With tons of capital available to private companies, that wasn’t available 10 years ago, private companies have more funding options than ever before. More private capital means higher valuations, larger funding rounds, and access to a diverse pool of investors – all things that where once reserved for public companies. 

2. Improved OTC – A lot has changed at the OTC Markets in the last few years. The OTC Markets Group has increase the quality of their OTCQB and OTCQX by providing more support to QB and QX issuers and holding those issuers to a overall higher standard. With all of the improvements at the OTC, many issuers are choosing to stick around rather than take on the increased cost and complexity associated with senior exchanges.

The two trends above seem to have a direct correlation to the decrease in OTC graduates.

So, why the drop in OTC graduates? In short, as the OTC Markets improve, less companies want to leave and, as more capital becomes available privately, fewer companies need to go public to raise growth capital.

Click to view the “2016 OTC Markets’ Graduate Review

What do you think? Why did we see such a huge drop in uplists this year?  Share in the comments or tweet at me @Benjamin_Kotch


 

About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

 

8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook.

8 Entrepreneurial Lessons From Morningstar's Acquisition of PitchBook.
PitchBook founder CEO John Gabbert

A few weeks ago, I read an article on Business Insider titled “How a cold call to a billionaire led this founder to sell his company for $225 million“. While the title intrigued me and I was a familiar with the subject, this post was different than others I’ve read regarding Morningstar’s PitchBook acquisition.

The piece, by Julie Bort, discussed what it really means to be an entrepreneur. Unlike other pieces, that focused on PitchBook’s great success, Bort discusses how PitchBook founder John Gabbert built PitchBook from a $100,000 family and friends investment to a $225 million acquisition by Morningstar.  While reading, I found myself less intrigued by the cold call and instead felt inspired by the entrepreneurial hustle of Gabbert.

Below, I list 8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook.

1. Don’t Be Afraid to “Cold” Contact Strangers – The most obvious advice from the piece but something many entrepreneurs just don’t do! You can’t grow a business without connecting with new people. Some entrepreneurs spend years building a product and planning but never actually pick up the phone and ask for; a sale, an investment, or whatever else it is they need to grow their business. Entrepreneurs that don’t make cold contacts when they are trying to build their business usually make cold contacts when they are looking for a new job.

2. Investor’s Money Is Sacred – In my opinion, venture capital/Silicon Valley press has brainwashed many entrepreneurs into thinking money grows on trees. Many microcap management teams are even worse. Gabbert says that “For the first two and half years we worked in a 200 square foot internal office with no windows, and we got up to 7 people in there.” Treat your investor capital with respect and spend it wisely. You will find that, when you respect every penny of investor money, you will be able to raise more capital, stay nimble, and increase your chance of business success.

3. Don’t Be Intimidated By “Important People” – In mot cases, rich, famous, and powerful people weren’t always rich, famous, and powerful. Sometimes we all forget that, no matter how much money or power someone has, at the end of the day we are all just people. If you are prepared and have a good opportunity for someone, you shouldn’t be intimidated – you should be excited.

4. It Takes A lot of “Noes” To Get to “Yes” – If you have sales experience, you probably know all about this (and some of the other lessons here). For those without sales experience, Gabbert “pitched over 200 that said no” and 17 said yes. Don’t be discouraged by the “noes”!

5. Don’t Raise (Much) More Than You NeedGabbert only wanted $500,000 to “tide him over” when he began investment conversations with Morningstar. Morningstar wanted him to take more. He ended up taking $1.2 million for 14% of PitchBook. That’s about an $8.6 million valuation in 2009. This year Morningstar acquired PitchBook for $225 million. Gabbert is probably glad he didn’t take more in 2009.

6. Put Your Money Where Your Mouth Is Gabbert invested everything he had and raised his first $100,000 from friends and family. Having skin in the game is not only an important motivator but it is also important to outside investors. While some microcap management teams understand this concept, many don’t! First-hand experience has taught me that entrepreneurs that don’t have their own “balls on the line” (sorry for the graphic image) usually don’t succeed. If you’re an entrepreneur playing with house money, ask yourself “why would an investor risk their capital with me if I haven’t even risked my own?

7. Building A Succesful Business Takes Sacrifice – All entrepreneurs “know” that building a business takes sacrifice but few actually sacrifice. Gabbert spent the “first 20 months of the startup living away from his wife and two young kids to save money – they moved home to Seattle while he camped out at a friend’s house in San Francisco and worked 80 to 100-hours a week. He kept tabs of his hours on a sticky note.” I know… you know… but ask yourself “am I doing whatever it takes to make by business a success?” 

8. Rome Wasn’t Built In A Day – One of my favorite Steve Jobs quotes is “if you really look closely, most overnight successes took a long time.” That holds true for almost every entrepreneurial venture. Persistence and hard work are at the foundation of virtually every success story. Sometimes, entrepreneurs let the outside world make them forget that Rome truly wasn’t built in a day!

You can read the full post on BI HERE.

Do you agree with my 8 Entrepreneurial Lessons From Morningstar’s Acquisition of PitchBook? Did you find any other hidden lessons in Gabbert’s story?


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.