"When you buy stock, you are buying a part (albeit small) of a business. Since it is supposed to be a business, without a financial statement, you really have no idea what you are buying. You have no idea of whether or not the company is economically viable, or if it is just a concept. Scammers often will tip themselves off by refusing to provide a financial statement."
agreed. There is quite a difference between finding a company which is simply in the earliest stages of being started up, and simply has incomplete financial statements to provide, (in which case you'd like to invest in something which has vast potential so you may choose to invest IF YOU KNOW SOMETHING ABOUT THE COMPANY AND/OR ITS FOUNDER(S) WHICH MAKES YOU COMFORTABLE ENOUGH TO RISK YOUR MONEY), and being foolish enough to invest in a company which has existed for some time but has no financials. Either management is not experienced/competent enough to provide financials which reflect the status of the company (even a brand new company ought to be able to provide pro-forma financials which make sense), or, even worse, it is a scam.
One thing I've experienced, though, is that it is often "easier" to get intestors into a company when LESS information is provided than when detailed information is provided. I don't know why; it is something to do with human nature or perhaps weakness that investors will plunk down money for a 100% "blue sky" proposal but will hesitate when enough data is given to accurately reveal the risks. However, when management has to deal with investors later on, especially, if the company does not meet its blue sky projections (which it rarely, if ever, does), accurate disclosure of risks/rewards makes the process straightforward and prevents legal problems, while sketchy or missing data, while allowing the investor to dream up any expectations which are necessary to get a quick initial investment, inevitably causes massive problems later on. Thus, a legitimate company MUST create financials which accurately reflect precisely what officers know at the time. If they are mostly guessing, the financials should clearly state that they are pro-forma statements which could change drastically over time.
Of course, anyone who is scamming the investor(s) is going to do just the opposite. The investor will be "scanned" by the scammer, who will try to discover what the investor is looking for, then, try to provide "cooked up" statements, or none at all, and try to sell the investor on the blue sky potential of the company. Thus, if I were considering investing in a company, I would simply ask them for financials. If I get good statments, even if they are pro-forma and clearly marked as such, I can evaluate risks/rewards and decide what to do. If management asks too many questions of me, especially, detailed questions about what exactly I need to see, either they are too inexperienced for my tastes, or, worse, scamming.
I was once in the position of being very inexperienced, and doing some of the things above which I would now not accept! So I speak from experience, even though at the time, I was honest with investors and was NEVER scamming them, because they did not do their "due diligence" properly, later on, there were hard feelings when my blue sky projections, which they mistook for hard facts, were not met. Entrepreneurs MUST see the "blue sky" much of the time, or they could not devote themselves to the task of building the company. Thus, a necessary trait of entrepreneurs, ie, almost a deliberate disregard for the risks involved, can be detrimental to investment by skilled investors.
There are many other issues which come into play, but for me, as both an entrepreneur and investor at times in the past, I agree wholeheartedly with the core of your assertions, ie, that a company must be able to provide financials which match the growth stage of the company, or, the risk of a scam is very high. Even new companies should be able to provide SOMETHING which is appropriate for the stage the company is in, otherwise, the risk is high that management is not honest with you, with itself, or both, and/or, that management is not aware of the need for constant financial management of company resources. In either case, the risk is VERY high for the investor(s), even though investment may still be made if the investor(s) are very interested and can get enough for their investment to justify the risks taken.
Just my $0.02 worth on the subject.
regards,
Larry
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