Investment & Financial Articles
Title: The Cost of Money
Author: William Cate
Article:
The Cost of Money By William Cate Published January 2000
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
If you're spending money to raise money for a private business,
you're betting on a long shot. The odds are against you. There
are two reasons that investors prefer public company
speculation. 1. If they see your business plan in trouble, they
can sell their stock and recover their risk capital. 2. The odds
that your share price will outperform your balance sheet are
overwhelming. Consider the Amazon.com share price against its
audit. As a public company, Amazon.com has been a winner for
many investors. As a private business, would you have invested
in it?
When you are serious about raising risk capital, you are talking
about taking your company public. It's the cost of going public
that financial professionals consider as the Cost of Money.
In April 1999, it cost about $1.23 million to do an IPO (Initial
Public Offering). I did a cost and alternatives study for
"
American Venture" Magazine. I sent you a copy of my Report,
last year.
In April 1999, you had two lower cost alternatives to going
public, without doing an IPO. You could buy a trading shell or
you could arrange to do a spinoff. The costs ranged between
$125,000 and $200,000 for shells or spinoffs.
In January 1999, the National Association of Securities Dealers
(NASD) announced that they would end the trading of private
companies (non-reporting companies) on the OTCBB
(Over-the-Counter Bulletin Board). The process would start in
June 1999. The last company would be delisted in July 2000.
There were about 3,400 companies that would no longer trade.
It took until the Fall of 1999, for the NASD to create an
increase in demand for trading shells. As I reported in an early
issue, OTCBB shells doubled in price in about three months.
The SEC is ending the sale of Trading Shells. How will this
affect the price of spinoffs and IPOs, by this Summer? It
depends upon the Bull or Bear winning in the Market in the next
few weeks.
The end of trading shell sales makes spinoffs the only low cost
alternative to doing an IPO. If a Bull Market survives the
current Market correction, demand for spinoffs will increase and
the cost of doing a spinoff must go up. If the Bear wins the
Market battle in the next few weeks, demand for going public
will collapse. You can't raise risk capital in a Recession or
Depression. Spinoff costs should remain at the current
US$250,000 level. This is payments over eight months of
US$100,000 and the balance paid from the proceeds of the
Offshore Private Placement.
Financial Professionals are caught between a rock and a hard
place. If the Bear wins, they can't raise risk capital. If the
Bull wins, the Cost of Money will go up in the next few months.
If the Bull looks like the winner, my advice is start the
spinoff process before your Costs of Money double.
To contact the author: Visit the Beowulf Investments website:
[http://home.earthlink.net/~beowulfinvestments/] Or, visit the
Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
About the author:
He has been the Managing Director of Beowulf Investments
[http://home.earthlink.net/~beowulfinvestments/] since 1981 and
is the Executive Director of the Global Village Investment Club
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
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