need some help with stock offering

[Beachgrl]

True enough. Key phrase is "investing in a small startup." "Small startups" are not investments. They are gambles.

William Bernstein on investing for retirement: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

ok so to this point, why then do folks invest in small startups? is it that there's a possibility that once they go public your share values will go way up? the other poster commented that there's a chance the ipo could be at 50% of the purchase price and then its losses.

i guess this is really playing the roulette wheel then!

 

[Beachgrl]

That's what I'd focus on researching - what can go wrong. Simply put, if you buy these private shares at say, $100, and then 3 years from now they IPO at $50...welp you have some losses to offset your other capital gains that year. Looks like the company has been around for many years, and you have direct experience with them. Sometimes that's good, sometimes it blinds us.

I wouldn't invest any more than you'd consider as a healthy donation. If there is ever a payback/dividends, great, if not, eh you've contributed to a cause you believe in. And there are worse ways to blow the dough.

thank you for this explanation.

i think i'll also have a chat with my accountant along these lines, since there's a possibility i'm making a sizeable donation

 

[OldShooter]

As a skeptical native NY'er, i'd be inclined to agree with you that someone was trying to sell me on this; however I merely went on their website and saw the investment opportunity and was looking into it. ...

That may be worse. It probably means that they couldn't find an investment banker who would take the deal.

Sorry for all of us raining on your parade but we are trying to help.

From another viewpoint, I have a business partner/multimillionaire friend who will occasionally take $200 to the casino, lose it all, and consider it to be affordable fun. That kind of thing just makes me cringe, but if you put a few bucks in this deal just for fun, expecting nothing, you will never be disappointed. Do not, however, use the word "investment" and do not do it with serious money.

 

[Beachgrl]

That may be worse. It probably means that they couldn't find an investment banker who would take the deal.

Sorry for all of us raining on your parade but we are trying to help.

From another viewpoint, I have a business partner/multimillionaire friend who will occasionally take $200 to the casino, lose it all, and consider it to be affordable fun. That kind of thing just makes me cringe, but if you put a few bucks in this deal just for fun, expecting nothing, you will never be disappointed. Do not, however, use the word "investment" and do not do it with serious money.

Well it's good to have objective folks with experience giving their honest opinions. I'd rather hear that than "oh yeah go on great idea" remarks!

Great anecdote! I also take $200 to the casino to play with. Glad to hear i'm in good company

 

[LOL!]

I've been involved with a small company that thought it would go public.

I learned that people who own a small company that is profitable want to keep all the profits and money for themselves. That is, when making money is easy, then why share the wealth?

Only when the company is no longer profitable do they try to get out by selling it to shareholders or someone else. Or if they get too old and want to stop working or retire, then they need to figure out how to get out.

And if a company needs more capital to keep going, they have to pay for that capital. If they can get a low-interest loan because they are profitable and not cooking the books, then that is cheap money without giving up any control. If not, then they have to go to more and more expensive places for money and loss of control which they would be generally loathe to do.

So if an investment banker comes along and says, "We can get you your money if you issue stock and we'll only charge you 5% to 10% of the money you get, but it's not money from your pocket, but from [-]dupes[/-] shareholders, are you OK with that?", then the company owners are often happy to take the money and walk away with it.

Be careful out there. There is a good story for all stock offerings or there wouldn't be any stock offerings. Remember the year 2000 and all companies issuing IPOs with no profits and no track record? Sell the sizzle, not the steak.

Just enough of the stock offerings have to be successful and profitable for shareholders to keep the stories alive and the money flowing.

 

[OldShooter]

ok so to this point, why then do folks invest in small startups? is it that there's a possibility that once they go public your share values will go way up? the other poster commented that there's a chance the ipo could be at 50% of the purchase price and then its losses.

i guess this is really playing the roulette wheel then!

Yes.

Why? Because it can be a fun way to make a little money. On balance my investments in startups have paid off. Some reasons:

1) I never put a significant amount of money in, compared to our net worth. $50K was my limit, which is often the minimum ticket to a private placement.

2) I never invested with people I didn't know prior to the the investment being offered.

3) I never invested in anything I didn't understand.

4) The exit strategy for most of the investments was to sell out to a larger firm in the same industry, not to IPO.

5) I always looked for base hits, 25% IRR, never for home runs.

6) I never had more than one or two running at a time.

The results varied. Made about $300K one time, made about a 12% rate of return/not enough considering the risk, one time. Lost $50K one time as surely as flushing it down the toilet.

I no longer play the game. There is just no reason and I am old and lazy.

 

[Col. Klink]

Everything in that list looks completely ordinary for investing a small startup (and almost all of them apply to the Fortune 500 list as well), except this:
* Up to thirty percent of the proceeds of this Offering may be used for non-company purposes.

This would also take it off my buy list. To me this is like loaning money to a small undercapitalized venture which is centrally controlled by a few individual that can use up to 30% of the proceeds for non-company purposes.

I suspect this is a non-cumulative preferred so if they miss a dividend payment, the shareholder loses. I'm not interested so I'm not going to waste my time even checking. Just a hunch.

Very speculative. Risk vs. Reward ratio does not add up for me.