Private money vs. public money

15 Jul

During challenging times such the ones that we are facing right now – the sub-prime mortgage crisis, the economic slow down, inflation, high energy prices – companies tend not to go public.  Good bad or indifferent, capital available to emerging growth companies is changing.

Consider the article in the Wall Street Journal on July 1st entitled, “As High-Tech IPOs Dwindle, Start-Ups Look to Private Money for More Backing by REBECCA BUCKMAN.  The article’s premise is that stock offerings of small venture capital backed companies has dried up and as such, they are turning to a newly emerging mezannine financing funds.  Secondly, postponing the pay day for venture capital bankers has also led to a secondary market for investments in companies due to liquidity requirements.

All in all, this spells opportunity and underscores what “going public” can be used for.

What type of opportunity??  In my humble opinion, it provides the opportunity to practice what I call “vulture capitalism” or VC for short (pun intended).  VC is you invest in something at a steep discount to market which currently is cash flow positive, all but ensuring that your investment provides a return even if you need to nuture it a little and let it flourish.

Secondly, the mezzanine round of funding is a much less risky to fund, someone else has taken the flyer on an un-proven company, so funding these companies provides a better investment vehicle for less risk averse investors – namely the VC (My terminology) investors.

And where does that leave companies that want to go public?  I believe that companies who want to go public having a sound high growth business model or that wanted to go public to provide a liquidity event for their founders (and have a sound foundation for continued growth) can still enter the public markets successfully.  Never forget that by entering the public markets, your stock is now governed by the law of supply and demand – if there is no demand, no magic happens.  The management team needs to sell their stock to the buying public (Rule #1 of the public markets).

If you are interested in taking your company public, call our professionals at Rhodes Holdings LLC.  With their experience in the public markets and their “roll up their sleaves and work” ethic, we can successfully bring your company to the public markets for much less than you might think.

Contact either Carey Cooley at 713-446-7481 / or Robert Rhodes at 281-435-3917 / for more information.

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Posted by on July 15, 2008 in BLOG


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