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Relief Valve? Done right, a private investment in public equity, or PIPE, could bring your business much-needed cash.

By C.J. Prince

Opinions expressed by Entrepreneur contributors are their own.

Last fall, Kevan Casey, CEO of eLinear, had two specific near-term goals forhis Houston-based technology solutions company: 1) to get listed onthe American Stock Exchange, and 2) to expand, beginning with a newfacility in Dallas. "We wanted to get off the [OTC] BulletinBoard as soon as possible so we could get in front of largeinstitutional investors and start moving up the chain," saysCasey, 32. One requirement for listing on the Amex is a minimum of$4 million in shareholder equity, of which eLinear had just $2.6million.

With only $13.6 million in revenue for 2003, the company was toosmall for a secondary offering. So eLinear's management teamopted instead to do a Private Investment in Public Equity (PIPE).PIPEs allow public companies to do a limited distribution ofsecurities-in common stock or convertible debt-to accredited orinstitutional investors, quickly and quietly. "It's like ahybrid of private and public capital," says Steven Dresner,co-author of PIPEs: A Guide to Private Investments in PublicEquity and publisher of The PIPEs Report. It ispublic equity, but "it's much like the traditional privateequity market in that you have a select group of seasoned investorswho can look at deals and make very quick decisions," saysDresner.

Efficiency is one of the PIPE's draws. PIPEs can be executedin weeks, where a secondary offering can take months. But the tighttime frame allows for only limited due-diligence investigation ofpotential shareowners. And business owners often have to make atough choice: either discount the stock-sometimes by as much as 70percent-or offer registration rights that allow investors to sellsooner.

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