Introduction

Your odds of raising $200,000 for a Private Company are about one-in-four (Money 1/1/98). Your odds of raising a million dollars as a spunoff public company exceed ninety percent. The odds improve because you are offering investors liquidity. They can sell their stock in your company because it will trade on Over-the-Counter Bulletin Board (OTCBB) in United States.

Liquidity means that investors are more willing to risk their money on your stock than on your company. Your stock has potential to outperform, by far, your business plan. These facts explain why professionals take companies public to raise money for company. Stock promoters abuse OTCBB system, but honest entrepreneurs must use it to succeed.

For Centuries, investors have told business owners to sell stock not steak (your business plan). If you find investors for your steak, they'll want half your steak for their money. If you have buyers for your stock, you'll keep control of your company. In financial world, few investors buy steak. There are millions of stock buyers.

If you don't hear investors' mantra to buy stock not steak, you'll repeatedly fail in your efforts to create a successful business financing formula.

Market Capitalization vs Balance Sheet

You beat odds. Investors risk a million dollars in your private company. You work hard and succeed in creating a three million dollar company in five years. Your company's pretax profit is $750,000 (25%). You sell your private company. Any business broker will tell you that you've made a good deal if you sell your private company for 1.5 times pretax profit. This means you and your partners gross sale will be less than $1,125,000. Your half of sale will be about $562,500. This is a Balance Sheet sale of your successful company.

Market Capitalization (Market Cap) is share price multiplied by issued shares of company. It's valuation formula for public company. Let's assume that you own 4.6 million shares of 5.6 million issued shares in your company. This is spinoff formula. I would use it to take your company public. Your stock trades on OTCBB in United States. You raise million dollars because odds favor your success. [If you work with me, I have European investors committed to my spinoff program.] You work hard and succeed in creating a three million dollar company in five years. Your company's pretax profit is $750,000 (25%). You merge your public company with a giant in your industry. Since you are among few cash-producing OTCBB companies and your stock moves up on news of pending merger, let's make a conservative assumption that merger occurs at $5/share. Your 4.6 million shares sold at Market Cap gives you $23 million.

You can sell your successful private company at its balance sheet value of $562,500. You can sell your successful public company at its Market Cap value of $23,000,000. You'll make your choice after you read this report. A private company decision is a base hit. A public company decision is a home run.

It costs money to raise money. You can use your seed money and work with quality professionals like AVCE to raise private risk capital for your venture. You can use your seed money to do a spinoff and go public. The question you should ask your prospective investors is do they prefer stock or steak. In my nineteen years of stock market and investment experience, stock is overwhelming choice of investors.

Let's assume that your seed money to raise capital comes from sale of ten percent of your company. If you sold your seed capital to steak investors, in five years, they'll earn $56,250. If they bought stock, they'll earn $2,300,000. If you were investor, which would you prefer stock or steak?

Stock Is Money

If you decide to print U. S. Dollars, U. S. Secret Service will be hunting you within a few months. You can get a permit to print money from U. S. Securities and Exchange Commission (SEC). It's called stock. Your job is to convince investors and owners of cash-producing assets that your stock is worth more than their dollars. When you do a spinoff, you can use your stock to buy cash-producing assets, without touching your cashflow, that builds your business into a three-million dollar grossing operation within five years.

You can use your stock wisely. You'll add cash-producing assets. In five years, your public company will be grossing ten or twenty million dollars. It will cost you no more to buy these assets than it costs to print stock certificates.

I've been in this business for nineteen years. I know that most OTCBB companies are run by stock promoters. Their goal is to move up their company's share price and sell their insider stock to public. It's a take money and run strategy. The SEC has waged a sixty year war against this strategy. The SEC has failed. There's three times more stock fraud today than in 1991.

In part, SEC failed because stock promoters don't accept Merger at Market Cap Strategy. It takes hard work to create a successful company. It takes perseverance to overcome problems. Why struggle to overcome business problems? You can sell your stock in a year? If you can't answer that question, you should join ranks of stock promoters. However, hire a good attorney. Eventually, you'll have to justify your Pump & Dump Strategy to SEC. Also, tell your wife and children to expect to move every two or three years. It takes about that long for your last stock promotion to go sour. One proof that Merger at Market Cap Strategy is better is that I've lived in San Mateo County, California since 1974. Nothing goes sour, if you ensure that everyone wins.

The Public vs Private Risk Capital Option

1. It's about twenty times easier to raise money for a public company than a private company. 2. You'll make about fifty times more selling a Public Company at Market Cap than a Private Company on its balance sheet. 3. You can use public company stock to buy cash-producing assets and improve your bottomline.

It costs money to create share buying. Every public company must find buyers for their shareholders' stock. You must have buyer when your shareholder sells. If your company fails to find buyers, your share price will collapse.

To maintain your present share price, your float will trade four times annually. Your float is stock held by your public shareholders. If your company's float is one million shares, you must expect to find four million shares of buying in next year. If you keep your present shareholders, you'll cut your stock support costs by 100%. If your insiders can't sell and thus add to company's float, you'll reduce your future stock support costs by fourfold for every unsold insider share.

The annual supply and demand for your company's stock isn't constant in Market. You get a favorable write-up. Demand for your stock temporarily jumps up. A major shareholder liquidates their position. The supply of your stock temporarily increases in Market. You need to level supply/demand curve. You can often do it by working with your shareholders. Your goal should be to maintain a sustainable share price. Your share price should trade within a narrow range.

There's a silver-lining about bad news. If your shareholders hear it from you, you'll gain credibility. If they hear it from you, it won't sound as bad as hearing it from their broker, a newspaper article, or in Shareholders' Annual Report. Budget money to spread bad news. It's a sound long term strategy.