Done right, a private investment in public equity, or PIPE, could bring your business much-needed cash.
Last fall, Kevan Casey, CEO of eLinear, had two specific near-term goals for his Houston-based technology solutions company: 1) to get listed on the American Stock Exchange, and 2) to expand, beginning with a new facility in Dallas. "We wanted to get off the [OTC] Bulletin Board as soon as possible so we could get in front of large institutional investors and start moving up the chain," says Casey, 32. One requirement for listing on the Amex is a minimum of $4 million in shareholder equity, of which eLinear had just $2.6 million.
With only $13.6 million in revenue for 2003, the company was too small for a secondary offering. So eLinear's management team opted instead to do a Private Investment in Public Equity (PIPE). PIPEs allow public companies to do a limited distribution of securities-in common stock or convertible debt-to accredited or institutional investors, quickly and quietly. "It's like a hybrid of private and public capital," says Steven Dresner, co-author of PIPEs: A Guide to Private Investments in Public Equity and publisher of The PIPEs Report. It is public equity, but "it's much like the traditional private equity market in that you have a select group of seasoned investors who can look at deals and make very quick decisions," says Dresner.
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