Using reverse merger instead of venture capital for venture capital
The more you think about reverse mergers, the better you know that reverse mergers are better than the classic venture capital model of venture capital.
Venture capital is clearly the key to the success of any new or growing business. The classic venture capital model seems to be this: entrepreneurs and his team have developed a business plan and tried to put it in front of venture capital firms. If they are well connected, they may succeed, but most venture capital firms have overloaded their funding requirements.
If an entrepreneur is not the latest in venture capitalists, he may not be able to find funding.
If the entrepreneur is very lucky, he will be invited to invest in VC. If the company survives the trial, it will get a list of risk capital terms. After a long period of confrontational negotiations, an agreement was reached and venture capital firms signed hundreds of pages of documents. In these documents, the entrepreneur and his team gave up most of the control of the company, usually the majority of the shares in the transaction. Their stocks are locked, and if they want to sell for cash, they may have to first provide the buyer with the buyer. Time from start to finish - 90 days or more.
If the company needs more money, it must negotiate with VC, and the startup team may lose momentum in the transaction. Companies may have to meet certain established milestones in order to receive funding. If the company lags behind the plan, it may lose equity.
With the development of venture capital, venture capitalists may or may not add value, and are likely to guess entrepreneurs and his team. If venture capital is successful, venture capital firms will receive most of the returns. If the joint venture is not successful, most of the funds will be lost forever. Some adventures end on the land of the living dead - not enough to end, not enough to succeed.
In the worst case, venture capitalists were initially controlled, dissatisfied with management, and overturned the original management, who lost most of their positions and jobs.
Reverse merger model
The entrepreneur found a public shell. He must come up with some cash to pay for the legal and accounting bills.
He purchased controls and merged them into the shell according to the terms he determined. He keeps control, but he has the burden of a listed company.
He decides how to run his own company, including salary. He can offer stock options to attract talent. He can acquire shares in other companies. He decides when to cash.
He must report to shareholders without having to report to the venture capital fund.
According to the restrictions of the securities law, he can sell part of the stock as cash.
He can find money at any time; he controls it.
Question: He may be attacked by short sellers. He might buy a shell with hidden defects. He must pay for the shell.
From the perspective of investors
Venture capital funds are usually funded by institutional investors seeking professional management. They don't have time to manage small companies and delegate this task to venture capital partners. Small investors are rarely allowed. Venture capital funds allow institutional investors to diversify.
Venture capital fund investors have been locked in for several years. If their annual return rate reaches 30%, then they perform very well.
The venture capital model encourages venture capital firms to negotiate arduously at low prices and harsh terms. Venture capital teams seeking knowledge funding may not accept such terms. However, for a weak company that only wants to collect wages for a few years before folding, in other words, a company with a bad investment can accept any clause, no matter how harsh. Therefore, the venture capital model tends to choose the worst investment and exclude the best investment.
Small investors can buy shares in reverse merger companies. They must spend time investigating these companies, but they may lack the intensive resources to do so. Most small investors lose money. If they win, they can win the grand prize. If they choose to do so, they can diversify their investments. They have no effect on management unless they are sold when they are not satisfied.
Summary
The reverse merger model is very advantageous compared to venture capital. While venture capital is always in scarce supply, reverse mergers always exist for any company that interests investors. Companies can usually raise funds from the public on terms that are better than venture capitalists.
Overall, the biggest advantage of reverse mergers is that the company has complete control over its fate. The team can be assured of success rewards. The company sets the terms and conditions, and can sell stocks under any conditions. No matter what the conditions are, insiders can sell them. The venture capital team will not be guessed by the industry, and the venture capital team does not have to fear losing fairness or work.
Another advantage is that investors are less risky. Investors are publicly traded stocks. If the investor does not like what happens, he can sell it. He may sell at a loss, but he can quit. Investors can also choose their own company, not just make an investment decision – decide to support venture capital firms and then control other decisions.
Orignal From: Alternative to venture capital funds - Control companies
No comments:
Post a Comment