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Strategies & Market Trends : cash-rich dot bombs
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To: stock leader who wrote (6)12/14/2000 9:18:45 PM
From: Jeff Leader  Read Replies (1) of 184
 
Your methodology is too simplistic. These companies need to be on a path to profitability (or at least positive cashflow) well before their cash disappears. Most of them aren't going to get another chance to raise capital on reasonable terms. Many of them will probably burn up their cash and disappear.

For example, I assume you have read the CYCO 10Q:
"We estimate that we currently have enough capital resources, including cash on hand, to fund operations and the projected deployment of our network through mid-2001. However, in order to continue our growth, expansion and the further development of our network and services in accordance with our current business plan beyond that point, we will need to arrange for substantial additional sources of capital through the issuance of debt or equity or bank borrowings. There are currently no commitments for any such additional financing, and we cannot be sure that we will be able to obtain any such additional financing at the times required and on acceptable terms and conditions."

Will they liquidate then? Probably not. Not unless there is no other way. And even if they did liquidate, they'd be lucky to get anywhere near what they paid. More likely, they'd pledge existing assets to get a costly bank loan. Or maybe raise money with an issue of convertible debt on onerous terms. Either way, if they burn THAT money, there'll be nothing left for existing shareholders.
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