Bad Deals Don’t Get Better
Being an entrepreneur all of my life, I’ve had several business ventures that required investment funding. I’m not talking about big venture capital, I’m referring to seed and start-up catpital — usually ranging between $50,000 – $300,000. Smaller than that you have to raise from your friends-and-family universe, which I’ve also done.
When you concieve an idea, it becomes the baby you’re carrying. And the promise of funding is like the day the doctor lets you hear its heartbeat for the first time: you can close your eyes and witness the bith that hasn’t yet occured.
It’s a hectic time; you’re making plans — budgets and timelines for the project/business–, while your deal-maker (the guy raising the money) is concentrating on the overall structure of the deal — the vehicle the investors will invest into.
In your excitement, as I did, you might be tempted to move fast; especially if your project is time sensative as one of mine was.
The vehicle for this deal was to be a reverse-merger into a public shell. When a publicly-traded company ceases operations, the entity that remains is the “shell.”
Usually the parties to such a deal include a deal-maker, investors and a stock-promoter. Many of the stock promoters involved in pink-sheet and/or Over-The-Counter stocks are based in New York City, and many of those are what my former C.F.O. referred to as “bottom-feeders.”
While a lot of paperwork had already been completed — a reverse-merger between my company and a public shell (the vehicle), the naming of me and my team to C.E.O, C.F.O etc. — there were a lot of things that weren’t.
In public company situations, many times a deal-maker will underwrite a company’s immediate cashflow until he can secure the funds required from thrid-party investors, and then recoup himself plus profit (either in cash or stock).
It is all too easy to get emotionally involved in a deal. And that was the error I made. By the time the reverse-merger was complete, the deal-maker had invested about $20,000 and counting, as an advance against the $300,000 the investment group he had lined up would provide.
When delays began, mostly from the investment group that was requesting certain things to be accomplished before they released funds, my deal-maker kept us barely on schedule with investments from his own pocket of $5 – $7,000 per month.
Thus, I surmized that he wouldn’t provide said money if (A) he didn’t believe in the project, and/or (B) he wasn’t sure that the investment group would deliver. As a result, I took the early money and plotted a course based on the full-investment balance arriving.
But then the delays began. First, the investors wanted the company’s new trading symbol to become active; then the Offering Circular (REG-A) to be filed, followed by a litany of other things month after month, not the least of which was the actual clearance by the S.E.C. of the REG-A (Offering Circular) I am my C.F.O were writing.Tags: Bad Dealspublic companyreverse merger
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