The,Cost,Money,The,Cost,MoneyB finance, share, loan The Cost of Money
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The Cost of MoneyBy William CatePublished January 2000[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]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 tworeasons that investors prefer public company speculation. 1. If they see your business plan in trouble, they can sell theirstock and recover their risk capital.2. The odds that your share price will outperform your balancesheet are overwhelming. Consider the Amazon.com share price against itsaudit. As a public company, Amazon.com has been a winner for manyinvestors. As a private business, would you have invested in it?When you are serious about raising risk capital, you are talkingabout taking your company public. It's the cost of going public thatfinancial professionals consider as the Cost of Money.In April 1999, it cost about $1.23 million to do an IPO (InitialPublic Offering). I did a cost and alternatives study for "AmericanVenture" 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 todo a spinoff. The costs ranged between $125,000 and $200,000 for shells orspinoffs.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 inJuly 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 increasein demand for trading shells. As I reported in an early issue, OTCBB shellsdoubled in price in about three months.The SEC is ending the sale of Trading Shells. How will this affectthe price of spinoffs and IPOs, by this Summer? It depends upon the Bull orBear winning in the Market in the next few weeks.The end of trading shell sales makes spinoffs the only low costalternative to doing an IPO. If a Bull Market survives the current Marketcorrection, demand for spinoffs will increase and the cost of doing aspinoff must go up. If the Bear wins the Market battle in the next fewweeks, demand for going public will collapse. You can't raise risk capitalin a Recession or Depression. Spinoff costs should remain at the currentUS$250,000 level. This is payments over eight months of US$100,000 and thebalance 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 Costof Money will go up in the next few months. If the Bull looks like thewinner, my advice is start the spinoff process before your Costs of Moneydouble.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/globalvillageinvestmentclubwelcome/]
The,Cost,Money,The,Cost,MoneyB