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% ofrepparttar companies they review. Your odds of raising money atrepparttar 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 forrepparttar 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 withrepparttar 112485 devil.

Let's assume that your company is a winner ofrepparttar 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 halfrepparttar 112487 VC stock in your company at doublerepparttar 112488 price paid byrepparttar 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% ofrepparttar 112491 VC's investment in your company to allowrepparttar 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 isrepparttar 112493 IPO will raise more money for your company. The bad news isrepparttar 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.

The Economics of Real Deals

Written by William Cate


The Economics of Real Deals vs Selling Smoke & Mirrors By William Cate Published September 1999 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

If you want to make real money inrepparttar Market, you don't want to followrepparttar 112482 Pump & Dump (P&D) crowd's approach torepparttar 112483 OTCBB. Promoting your Smoke & Mirrors (S&M) stock and selling your shares intorepparttar 112484 Market isn't very profitable.

Let's assume that you spent a million dollars to take public a Smoke & Mirrors company onrepparttar 112485 OTCBB. You have four million insider shares. You raised $500,000 by doing an IPO at $0.50/share. Thus,repparttar 112486 S&M company has 5 million shares issued. This is aboutrepparttar 112487 limit of shares workable for any OTCBB company.

You wait one year, spending your IPO money on your salary etc. Your 4 million shares are now free-trading. Becauserepparttar 112488 SEC rarely enforcesrepparttar 112489 Insider Trading Rules, you intend to ignore them. You're ready to do your first small P&D. Your target share price is $3.00/share. You expect to sell your insider shares on average at $1.50/share.

It'll cost money and stock to dorepparttar 112490 stock promotion. We'll assume that you'll have to trade your S&M float (create 5 million shares of buying) to generate a $3/share price for your S&M company. If we applyrepparttar 112491 Florida formula to creating 5 million shares of stock at an average price of $1.50,repparttar 112492 dollar cost to you will be about $750,000. The Florida formula assumes that your P&D group knows what its doing. You'll have to give away some of your stock to stock brokers, investor relations firms, and others. If you know what you are doing, you'll give away less than 1 million shares. Whatever stock you give away will be sold into your P&D. Let's assume that for this small P&D, it's 500,000 shares.

Public investors onrepparttar 112493 OTCBB are speculators. It'srepparttar 112494 only way they can make money. You must assume that your one million-share float will be sold into your stock promotion. This means that 1.5 million shares (rememberrepparttar 112495 500,000 shares you paid to create buying?) ofrepparttar 112496 S&M selling won't benefit you.

Your next problem is that there are an array of Market Professionals that include Market Makers and stock professionals such as myself that will easily spot your P&D in it's formation stage. We'll buy your stock cheap and sell it high. We'll be at least two million shares of your selling. The Rule of Thumb is that small P&D sellers dump about 25% ofrepparttar 112497 volume. (In a major P&Ds insiders can do up to 40% ofrepparttar 112498 dumping. and they getrepparttar 112499 money fromrepparttar 112500 Private Placements they arranged during their P&D.) In our example, you'll have sold 1,250,000 S&M shares at an average price of $1.50. You will have grossed $1,875,000. Deduct your $750,000 cost and you appear to net $1,100,000. Keep in mind that many P&Ds lose money forrepparttar 112501 promoters. However, in our example you are a winner.

The SEC may not rigorously enforcerepparttar 112502 Insider Trading Rules. They only respond to public complaints in about 10% ofrepparttar 112503 P&D cases. However, they respond to nearly 100% ofrepparttar 112504 P&D's whose share price collapses. Thus, you must support your P&D share price as it slowly collapses below one dollar.

Your problem is those Market Professionals and brokers who took most of your P&D profit onrepparttar 112505 way up are now selling short your stock. You must use your $1,100,000 to buy some of their short sales. You'll do it by trying to get public shareholders to keep their stock. You'll do it by promoting your stock intorepparttar 112506 short selling. Inrepparttar 112507 end, you'll spend about $900,000 of your profit defending your share price onrepparttar 112508 way down. The Rule of Thumb is that inrepparttar 112509 usual small stock promotion,repparttar 112510 P&D insiders make about $150,000 to $200,000. You can usually do about three P&Ds on most S&M companies, before you can't find more pigeons forrepparttar 112511 next P&D in that company.

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