Why Investors Should Consider Private Equity – Part 1

What is one of the biggest reasons to go public? For the junior mining industry, it is to raise discovery and exploration capital. For other industries, it is a liquidity event and for more growth capital.

The following article was borrowed from a blog by Oreinc, a boutique merchant bank that provides research for companies, institutions, and investors in the junior commodities space. On September 11, 2012, when it was written the TSX Venture Index was $1,275. Today at February 17, 2013, the index was 7% lower at $1,186. Their thesis remains relevant. Here’s an excerpt from Oreinc’s and our views.

TSX Venture Index February 17, 2013

TSX Venture Index February 17, 2013

Oreinc:

I had a very interesting conversation with a senior market participant. I argued that in weak markets like the one we are currently in, I prefer to see companies shut down and reverted back into shells. I would like to see 20-30% of the junior companies shut down. He argued the market is so weak that if the exchange did not change the rules, some good companies would die alongside the bad companies.

Healthy Crowdfunder:

The market is indeed extremely weak given the unresolved financial issues in Europe and in the US. The memory of 2008 market crash remains vivid and the fundamental issues in Europe and in the US will remain unresolved until the deleveraging process has completed or we generate disruptive innovations making us all extremely productive.

Oreinc:

I agree that the market is completely shut down for many juniors, but we also have a significant number of private companies that could replace the sub-five cent players in the market. A good company should be able to do a $0.05 financing with a $0.075 warrant exercisable for two years.

Healthy Crowdfunder:

We are in a bearish market – the great recession. This is why at Healthy Crowdfunder we have decided to focus on health solutions. It is a necessity, in boom or bust times. Coupled with that, we have an ageing and not so healthy population who will only aggravate the rising health care costs, a major contributor to the fiscal cliff.  We will collaborate with those companies while they are private and work along with them until exit by M&A or a going public event.

Oreinc:

Weak companies spend 20-40% of their market caps in exchange fees, lawyer fees, and audit fees. There should be a point where the plug is pulled and the company is either restructured (a rollback) or put out of its misery (a delisting). A company with 150 million shares outstanding at $0.02-$0.03, no resource, and $250k-$500k per year of overhead needs to make changes.

If we let the weaker companies go out of business, we can put more focus on healthy companies. On the other hand, the stock exchange makes significant fees from zombie companies, so it will not give up its sugar rush with any speed.

Healthy Crowdfunder:

The way we manage our health and therefore, our impact on healthcare, needs to be rebooted. It is unsustainable. To catch up with rising healthcare costs, entrepreneurs and their management should be spending more time developing and accelerating the commercialization of their products, instead of being distracted by the capital raising process.

Investing in resource commodities is ideal when the global economy is growing. For now, investing in precious metals is the only logical strategy since global currencies are racing towards devaluation to be competitive. That is counterproductive. Competing countries should tighten their belt and produce products at lower costs with better quality and functionality.

At Healthy Crowdfunder we want to co-finance and co-develop predictive, preventive, and personalized health ventures. Now is the time to participate in such major undertaking. Read our blogs on why finance health.

Advertisements

Leave a comment

Filed under For Entrepreneurs, For Investors

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s