Finance: Exit Strategies for Public Companies

Exit Strategies for Public Companies

Written by William Cate

Exit Strategies for Public Company Insiders By William Cate Published January 2001 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

There are three ways that public company insiders can convert their equity into cash.

1. They can sell their stock to repparttar public. This is repparttar 112484 goal of repparttar 112485 insiders in most OTCBB and Nasdaq Small Cap Companies. It's summarized in repparttar 112486 axiom "Pump & Dump." The stock is promoted as repparttar 112487 insiders sell their shares into repparttar 112488 public buying. The SEC has spent 60 years trying to stop this practice. We have insider trading rules that ban it. Yet, repparttar 112489 insiders' goal, in over 80% of repparttar 112490 OTCBB companies, is to dump their stock on repparttar 112491 public. This strategy is unprofitable for repparttar 112492 promoters. It's not that repparttar 112493 promoters face undue risk from an SEC investigation. The odds of a high flying turkey being investigated are about one-in-ten. The profits for insiders in "Pump & Dump" schemes are small. It costs money to promote stock. The insiders illegally pay outside promoters with part of their free-trading shares. The average "Pump & Dump" company insider nets less than $150,000 from repparttar 112494 stock promotion. For example, repparttar 112495 Canadian media believes repparttar 112496 Bre-X Scandal was repparttar 112497 biggest mining stock scam in history. These newspapers reported that only one insider made more than a million dollars from it.

2. The insiders can create an industry giant. It will qualify to trade on repparttar 112498 New York Stock Exchange. The insiders and their heirs can live off their dividends and repparttar 112499 occasional sale of a few shares of their stock. This is repparttar 112500 Capitalist ideal. The insiders will retire multimillionaires. Since 1945, a few companies, like Microsoft or Apple, have made this journey to success in less than a decade. For most companies, it'll take them a lifetime to reach their goal. The insiders of these companies have better odds of success in Las Vegas. This appears to be repparttar 112501 "Impossible Dream" of about 5% of repparttar 112502 companies trading on repparttar 112503 OTCBB.

Venture Capitalists

Written by William Cate

Venture Capitalists By William Cate Published March 1998 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

They invest in less than 1% of repparttar companies they review. Your odds of raising money at repparttar 112483 race track or in Las Vegas are better than your odds of finding a venture capitalist. I don't believe that it's worth your time and money to seek their investment in your company.

Venture Capitalists aren't Fairy Godmothers. If you won't give up 60%-70% of your company for repparttar 112484 venture capital investment, you'll never interest a Venture Capitalist in your company. For most business owners, a contract with a Venture Capitalist is a deal with repparttar 112485 devil.

Let's assume that your company is a winner of repparttar 112486 Venture Capital Lottery. You'll become a minority shareholder in your company. Your job will be to make your company a business success.

The Venture Capitalist's first goal is to recover their investment in your company. The VC expects to recover their risk capital within twelve months. They'll do it by appointing several financial sales people to top management positions. This VC management group will prepare your company for its IPO. They'll encourage accredited investors to buy half repparttar 112487 VC stock in your company at double repparttar 112488 price paid by repparttar 112489 VC. Within a year, repparttar 112490 VC has recovered their risk capital and still owns 30%-35% of your company. It takes between 25% and 40% of repparttar 112491 VC's investment in your company to allow repparttar 112492 VC to breakeven on their investment.

No one risks money to break even. The VC's goal is to do an Initial Public Offering and take your company public. Once your company starts to trade, they'll sell their 30%+ stock in your company. The good news is repparttar 112493 IPO will raise more money for your company. The bad news is repparttar 112494 IPO shares will further dilute your ownership of your company. As a public company, you'll probably now only own 10% to 15% of your company.

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