Private companies hoping to go public must prepare themselves first. Understanding some of the typical changes these companies make can help you find potential exit candidates.
Investors in the Worksport Regulation A raise saw gains of up to 489%, in some cases in just a few months. Worksports’ Regulation A raise concluded in March of 2021. By August, the company went public. And by October, the stock was trading at $7.85 per share, representing a nearly 5X return on investments made as recently as seven months prior.
Worksport was a successful investment for Regulation A investors, and it did three key things that told the market it was setting itself up for success. Understanding these things can help investors identify future opportunities. And one of the company’s plans was well known to investors in the offering at the time!
After the IPO, investors also had an opportunity to take one action that would maximize their returns while still leaving them with a solid position in Worksport.
Deal Report has written about the turn before. The turn happens when a growing company makes a shift that changes its business plan, such as when Paypal’s predecessors shifted from cryptography to payments. What did Worksport do? It was a maker of tonneau covers – the covers used on the beds of pickup trucks. Its initial goal was to expand the product offerings beyond what were traditionally available to pickup owners, like foldable covers. While it was raising money under Regulation A, Worksport shared that it was designing something entirely new – a solar tonneau cover that could charge a battery that the pickup owner could then use to power tools or anything else.
At the time, Solar tonneau covers were something entirely new. Rather than compete with entrenched tonneau cover companies, Worksport had the entire market to themselves. Time will tell how large this market is, but initially Worksport had a 100% market share. That was so appealing to stock market investors that Worksport upsized the offering and the price still soared in the months following.
The company that Deal Report Pro is currently recommending also just announced a new product. It is not as radical a shift as Worksport’s, but the known market size is much larger.
In both Worksport’s case and that of our recommendation, the new products leveraged each company’s existing expertise to open up new markets. The lesson to keep in mind here is do not underestimate the power of a turn in a company’s business plan.
As we wrote about just last week, companies often take advantage of timing when they complete an IPO. Worksport saw stocks of solar and EV companies soaring in early 2021 and capitalized. Regulation A investors benefitted. They were able to purchase shares early and sell when the valuation increased, if they chose.
Invesco Solar ETF
Disclosure! These arenot official recommendations. Investing is risky. Before making anyinvestments, we strongly advise you to discuss your investment options withyour financial advisor, including whether any investment is suitable for your specific financial circumstances and needs.
All of us here at Deal Report are excited to announce that Deal Report Pro is now live.
We have a home automation dossier queued up featuring a promising private deal opportunity for you.
The Reverse Split
We’ve not written about reverse splits before. Among public companies, a reverse split is usually bad news, a sign that the company’s stock price has been declining and that it is in real financial trouble. Among private investments, the opposite is often true!
Why would a reverse split be different for private companies? We’ve written that investors should ignore the share price and focus on the value of the company. But many investors have not received that message. Many private investors love to buy into deals with low dollar prices. In the case of Worksport, the company sold units at $0.10 each, with each unit representing one share and one warrant to purchase a share at $0.20.
However, a company cannot list on the NASDAQ with such a low share price. NASDAQ requires shares to debut at $5.00 per share or higher. So Worksport did a 20:1 reverse split. A person who purchased 100,000 shares at $0.10 might be disappointed at first to find that she now has only 5,000 shares at $2.00, but the higher share price is what eventually allowed the company to go public at $5.50.
Reverse splits are common among private companies and are a good sign that the company hopes to have a public listing in the future. Worksport even explicitly shared that the reverse split was completed so it could become qualified for a NASDAQ listing.
Taking Money Off the Table
In an article last week about what to do after your private investment goes public, we wrote about one strategy that involves looking for an attractive exit price in the aftermath of a successful IPO. In the case of Worksport, those investors who think like venture capitalists and take at least some profits off the table were better off than people who held, at least until today. On the other hand, it could be that the Worksport solar tonneau covers will be a monster hit and the share price will far exceed the peak it hit shortly after the IPO. Investors who sold closer to the top and believe that can now reinvest some of their profits at a lower share price.
Your Checklist Items: Look for signs a company has an IPO planned. A turn in the business plan, a reverse stock split, and a favorable move in the company’s sector are all signs to watch for. When a company does complete an IPO, think like a venture capitalist and look for exit opportunities so you can redeploy profits as you grow your private investment portfolio.
Upgrade to Pro
Private Investment Opportunities
- In-depth research on promising Reg A and Reg CF deals
- Interviews with founders
- Private market analytics
- Actionable insights on how the private markets are evolving
Pop Finance, LLC (“Deal Report”) is affiliated with Novation Solutions, Inc. d/b/a DealMaker (“DealMaker”) . DealMaker provides issuers with a technology platform and analytics suite to facilitate their capital raise. These fees are billed as setup, platform and processing fees in connection with its services for the featured company and include per investor processing fees. Issuers do not compensate Deal Report in order to be featured. The intention of Deal Report is to bring investors a selected list of opportunities available from Deal Report’s affiliation with DealMaker, in addition to other timely and relevant financial information. Deal Report is operated as an independent publisher and performs independent analysis of any issuers that are featured. The content provided by Deal Report is based on publicly available information. Although we obtain this information from public sources and believe it to be correct at the time of publication, we do not guarantee that the information is accurate or complete. This information may become outdated and we have no obligation to update it. Deal Report, its affiliates, members, officers, directors, owners, employees, agents, representatives, and/or services providers make no warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, or completeness of any information contained in the content provided by Deal Report. The content provided by Deal Report is solely for informative purposes and does not constitute investment, legal, accounting or tax advice, nor is it a solicitation of an offer or recommendation to buy, sell or hold a security. You should not assume that any investment in a featured company will be profitable or have been profitable in the past. Before making any investments, we strongly advise you to discuss your proposed investment as well as alternative investment options with your financial adviser, including whether any investment is suitable for your specific financial circumstances and needs.