What's the difference between a private company and a public company? More importantly, how is it different when you are the CEO? Unfortunately, not everyone gets to experience what it's like running a private company and going public. In this podcast episode, Darren Lampert, CEO at GrowGeneration Corp, shares his transition experience that he went through when his company went from private to public.
"You're on display at all times. Everything you do is transparent. So if you're not looking to be transparent, stay out of the public markets." - Darren Lampert.
According to Darren, transitioning wasn't that difficult for him because he had extensive experience working in public companies. But Wall Street is a complicated area, and if you don't understand security laws and the public market, it's a tough place to be involved.
As a CEO, one of the biggest changes is your privacy when you are transitioning from private to public. Darren feels like his life is on display all the time. In a private company, you can be as transparent as you want. But in a public company, you're an open book, and your book has to be clean.
Another big difference is the extra time he has to spend talking to Wall Street on top of his day job. Approximately 10 to 20 hours a week, he has to attend analyst calls, conferences, and meetings. Pre-COVID, these meetings require travel which takes days of his time. This is one of the things that makes running a public company more challenging.
He also now answers to more people than he usually would have if he stayed private. A public company CEO has to answer to committees, boards, shareholders and Wall Street.
However, the biggest difference between a public and a private company is the leaders’ perception. In a private company, your primary concern is what's best for you as the owner. In a public company, your primary concern is the best interest of the company.
When it comes to M&A, being public has many upsides. As a public company, you have more leverage in M&A deals. Companies will perceive that you are bigger and can see you as a threat to their industry, which makes it easier to purchase a target. Compared to as a private company, they may see you as an equal, making it harder to negotiate.
Speaking of negotiations, public companies can pay the purchase price of the deal using their stocks. This is something that a private company can’t do. Raising money is also easier, as there are many avenues to raise funds quickly, such as IPO and bonds.
However, doing M&A as a public company requires more reporting. They need to report any acquisitions that they do, and need board approval before they can continue with any deal. They also have to adhere to specific SCC rules and regulations that would not be present in a private company deal.
Because you are now an open book as a public company, people will now know every acquisition that you make and how much you paid for your last transaction. You have to be very disciplined and refrain from overpaying for deals as it can destroy your reputation in the public's eyes.
Despite the many difficulties of running a public company, why ever go public? According to Darren, it's a chance to build something that will potentially be around for many years to come if done right.
Going public is also a great way to create wealth. Raising capital is so much easier in the public market compared to the private market. People are very hesitant to invest their money in private companies.
Having said all this, Darren has some advice for people who want to bring their company public; run the company public before you go public. Set up a board, have financials every month, truly understand the process before you start going public. Most importantly, understand your industry, growth rates, and how much capital you're going to need. You have to put yourself in a position to win.