Henry & Bert,
Generally, I really like private placements and other types of direct investments. I have a broker that introduces me to deals and I'm in a couple of angel networks that help me see a lot. I highly recommend The Capital Network in Austin, a matching service between companies seeking capital and accredited investors. You provide selection criteria that narrows down what you are specifically interested in (by industry, stage of development, size, earnings, capital required, etc.) and they send you 10 to 15 new deals every two weeks. I also get information from a couple of firms that put together private placements followed by reverse mergers. I have probably participated in a half dozen deals from them in the past three years and have made some incredible returns. I don't have a venture-capital mentality. I don't need 50% of the company. I go in with a smaller position and simply look for deals that provide me with a better opportunity than had I bought the shares on the public market. I look for companies that can totally dominate a market, not just get a small percentage of a big one.
Yes, private placements can be high risk and do require extensive DD. I have found, though, that, through the business plan and/or offering document, I can usually get more information than what is available from most PUBLIC companies, especially those on the OTC:BB. And I don't have to deal with the public hype and BS.
I used to invest in private companies just to get the initial boost to a public valuation when they hit the street. Now, I'm thinking a little more long term, but still want to see that exit vehicle committed to at a not-to-distant time frame (just to get the public valuation sooner). I've been trapped in quite a few private companies that never quite "got around" to being public. I'm in a couple of those right now - good companies, just can't realize a return on them yet! To me, that is one of the greatest considerations. I can only be patient for so long, especially during one of the greatest bull markets ever.
As far as restrictions, I just make sure that the company founders and persons assisting them are locked up tight. I've been locked up myself a few times, but generally participate in deals that then provided me with free-trading shares when they became public.
The key is management. I used to subscribe to the belief that you should "invest in a company that any fool could run, because someday one will." That is still true to an extent, but I really, really look at management. I shy away from the deals where a young, hot-shot has come up with the greatest so-and-so, and look more favorably on deals where industry experience and credibility are evident. Diversification is now also key to me. I want to see a company that has the chance to make it in a couple of areas - not all the eggs in one basket. I also want to see patents. I have been a little lax in double-checking in that area recently, but it is extremely important. Most importantly, I want to see product available right away. I'm sure you've both been in those R&D deals that are in R&D forever and ever. There's always some sort of delay and the window of opportunity becomes narrower by the day. Yes, these early-stagers afford the opportunity to grab more of the company, but I've found great returns with lot less risk.
The one I'm into now is Hide and Seek Technologies - probably the best one I've seen in years. They are currently doing a private placement for $1 mill. They have a very unique optical disc copy protection technology that addresses the $11 billion lost to software piracy each year. They are managed by a who's who in the optical disc industry (including the President of the Optical Disc Manufacturers Association) and have received glowing endorsements from the Software Publisher's Association among many others. This is the type of deal I like. Again, not a VC-type share up for grabs, but certainly a low valuation (12.5 mill) compared to what the market will put on it (they are currently quoting over $50 mill in initial orders alone). If you're interested, they have a web site at hideseek.com and SI thread (yes, already) at
exchange2000.com
I'm still curious to what sources you guys specifically use. The hardest part of this strategy is simply finding the good ones out there. It seems that I go though a hundred business plans before I find one even worth considering.
I would love to know of any you guys are currently considering.
Clo
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