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After viewing a CBS 60 Minutes II segment titled: "Wall Street Prophets" it
appears that that there is grave concern in the retail investing communities.
The public is starting to believe that Wall Street and other professional
financiers are not doing such a great job meeting their clients’ needs when it
comes to their investment spending goals. NASDAQ has lost over 40% of its value
since the glory years of the late 1990s. In all, about $1.5 trillion in
investments have been simply wiped out. A lot of this money was lost following
the advice of stock analysts, these experts usually work for big brokerage
houses. Most view them as the prophets of Wall Street. They analyze a company,
look into the future, and recommend whether to buy the stock. The CBS 60 Minutes
II segment pointed out that in fact that there maybe a built in conflict of
interest between them and the investing public at large. There is an old adage
that says "He who has the gold makes the rule". The stubborn fact remains, Wall
Street still makes money whether investors win, loose, or draw.
Adages like these don’t have to be true when it comes to corporate finance for
small business. Now there is a way for small businesses and the investing public
at large to repossess the process of capital formation, similar to what happened
in early colonial American under the button wood tree. This began the early form
of the Wall Street Exchange, providing a direct connection between investor and
entrepreneur.
With a 1984 revision to the Securities Act of 1933, knowledgeable business
owners can sell their companies' stock through a Direct Public Offering (DPO),
without filing a SEC full registration. This process, which is effective for any
type of business from high-tech companies to service firms, uses a simplified
registration process and provides long-term equity financing that is critical
for small and emerging businesses. In exchange for sharing ownership of the
business with investors, a business owner can access capital without incurring
interest or principal payments.
There are several advantages to launching a DPO as a means of raising capital.
Unlike the more complicated and costly IPO, a DPO is less expensive and only
requires registration with the securities commission of the state in which the
business operates. The benefits of selling stock in the company are two fold -
it raises the capital necessary for growth (proceeds from the sale of stock are
maintained by the company), and it markets the company and its products or
services. A small company selling it's own stock promotes locally-based
financing and community development, since 90 percent of principal investors are
typically from within a 50-mile radius of the company and are familiar with the
company and its products. Additionally, as a consideration for future funding, a
company may attract the attention of investment bankers.
For these reasons, initiating a DPO is becoming an increasingly popular way to
raise capital. Currently, 47 plus states permit the use of Small Corporate
Offering Registrations (SCOR), a type of DPO, and, as reported in December 1996
by the American Banker, 132 companies have fully funded their businesses through
SCORs.
FACT: Over the last 15 years, Fortune 500 companies (companies most likely
financed by Wall Street) have reduced their workforce from 16 million to five
million. Over the same time period, small business has added 20 million new
jobs. They have done that with less than 1% of publicly traded equity capital;
it is obvious that if this creative force had the capital, they could propel the
economy forward in spectacular fashion. The SEC has developed a hands-off
approach for much of small business stock offerings, preferring that regulatory
responsibility he principally with the states. As more people learn about and
successfully use a DPO, this type of financing could become a favorite for
emerging, high-growth American businesses in the future.
With sound programs like this, we can see learn our lessons from this "Casino
economy" and shift investment capital from investment in speculative "paper
assets" to productive investment in a real job creating economy.
John k. Romano is a highly experienced financial pro, he is president of Virtual
Capital Group.Com Inc an Internet Incubator, his firm consults with corporations
and business advisers on applying high-tech capital-raising alternatives. He has
written several books about how to raise money over the Internet and he can be
found at:
http://www.raisemoneydontborrow.com or
john@raisemoneydontborrow.com
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