IPO: A two-edged sword
Once Rockwell provided a direction for growth, ExOne faced a different challenge that many young companies face — raising capital.
From 2008 to 2013, Rockwell invested almost $40 million of his own money to get it up to where it was a viable and describable investment opportunity.
“What was very clear at the time was that for ExOne to be able to grow, the intensity of capital required to become a major player in the industry was an excessive amount of capital and more than I would have cared to participate in individually,” he says.
In the case of ExOne, the company was losing money but had great technology and a proprietary position, which made him think of the public market.
Rockwell couldn’t get capital from banks because the company didn’t have enough earnings or appreciable assets to leverage, and he didn’t care to give up control to the private equity markets.
“So I simply said, ‘Let’s just try and hit the IPO market and see how that goes,’ and it turned out to be very successful,” he says.
An IPO, however, is an intense process to meet the tests of public scrutiny of the Securities and Exchange Commission and its required audits.
“So, it’s a two-edged sword. You’ve got to be careful what you wish for,” Rockwell says. “All of the compliance requirements and everything that you’ve got to go through are very, very expensive. To be a public company today, it’s costing us at least $2 million a year.”
A few years ago that number would probably have been $3 million, Rockwell says, but the SEC lessened the 404 requirements for small companies.
“Make sure that you get enough money that you can endure the costs of being public, because they’re not small ones, even in the new environment that they provide,” he says.
There are alternatives in the public markets to IPO, Rockwell says. But every company needs to find the best way to match up its specific needs with its capital requirements.
Opportunity from disruptive technology
As a 3-D printing company, which generates a certain amount of investment excitement, ExOne was able to raise more capital than it needed. But Rockwell says when you get that much face time with the markets, and you’re dealing in high-priced multiplies, the price isn’t likely to sustain itself.
“Our stock price is now down around 40,” he says. “Having started at 18, it went all the way up to 78, and now it’s back down to probably a more realistic norm for what the industry should be priced at.”
He says that as a public company you can’t focus too much on the price.
“The market value of a company is really the efficiency of the management that’s running it multiplied by the market opportunity of what that company is doing,” Rockwell says. “And that ultimately will determine whether you make more money or less money.”
