What Is The Most Ridiculous Justification You Have Ever Heard To Rationalize An Inefficient /Expensive Capital Structure?

This question was prompted by the May 2019 Life Science Leader article, “A Different Path To An IPO.” In this case, the company’s decision to eschew traditional capital formation/company building in favor of a simplified, all common-stock capital structure is very naïve and disingenuous. For the record, various preferred classes of stock automatically convert into common shares upon the occurrence of an IPO, providing public-market investors with a simplified capital structure, underscoring the deficiencies in the company’s boastful argument (if their $8M IPO is not illustrative enough). Bottom line, there is no sidestepping the fundamentals: competitive edge/advantage/differentiation, management team credibility, and competitive landscape. It appears greed, fundamentals, governance, and self-preservation were driving forces behind the company’s capital-formation strategy. Over the long run, I anticipate the company’s cost of capital will remain expensive, as it’s hard to have “freedom to execute” with a sub $100M market cap, and captive to the retail traders.

ALLAN SHAW is a four-time public company CFO and has served on five public boards, which included chairing two audit committees and two compensation committees. He currently serves on the board of directors of Vivus Inc.