No Revenue, No Assets, No Capital ? No Worries!
By Paul R. La Monica
NOW I'VE REALLY seen it all.
A little company called Venture Capital.com filed to go public last week. Now, you've probably never heard of this company. I hadn't, either ? until a stock analyst at Morningstar.com (thanks to George Nichols for the tip!) emailed us at SmartMoney.com to point it out. Nichols said the prospectus was definitely worth reading.
And was he ever right. For all you Net bears (and I'm not saying I'm one of them) who criticize the valuation of Web companies and question whether online business models make any sense, this filing is perfect ammunition. In fact, it might be enough to make some of you pace up and down the streets carrying "The End Is Near" signs.
Why does this filing have me in such a tizzy? Let me count the ways.
For one thing, Venture Capital.com started operations about a month ago. That's right, December 1999. What happened to the days when a company had to prove itself in the real world before filing for an IPO? All it takes now is a month of operations before it's time to seek money from the public? The company of course has no profits ? but it doesn't even have losses, either. Even Linux One, the Red Hat wannabe, had the decency to report a minimal amount of losses before it filed to go public.
For another, according to the filing, Venture Capital.com has one employee. One! James Martin is the founder, president, chief executive officer and a director. For that matter, he might as well also be the chief financial officer, head of human resources and custodian.
Check this out from the corporate background section of the prospectus:
"In 1999 our founder began research to investigate the feasibility of entering into an Internet-based venture capital program also offering additional business financing services. In December of 1999 we were incorporated in the State of Nevada as Venture Capital.com, Incorporated."
I know that these prospectuses are supposed to be written in the first person plural, the royal "we" if you will, but isn't it odd that a company with one employee is using "we"? Cut the pretense here. Why not just use "I" throughout the filing? The prospectus also says the company's sole employee was "hired" in December. Hired? I'm really confused. If Martin started the company, then who hired him? His mom? Some voice in his head? Why doesn't he just say he founded the company and is currently the only employee?
Elsewhere in the filing, we see that there are no underwriters listed. No attorneys, either. There was an accountant who looked over the financial statements, a William Querin. But he had a really easy job, apparently. Here's what he had to say.
"I have examined the Financial Statements and Operating Statements of Venture Capital.com, Incorporated which was incorporated in the State of Nevada in December of 1999. The subject Corporation has no assets or liabilities. In addition the subject Corporation appears to have no operating history."
Querin may not have had much to do, but Martin certainly is a busy guy! According to the filing, he's also a member of the audit committee and the compensation committee. The audit committee was established to meet with members of management and internal accounting personnel while the compensation committee gets to figure out just how many options Martin will get. Now unless Mr. Martin has somehow found a way to clone human beings (or is suffering from a serious case of multiple personality disorder) then won't all those committee meetings be a tad one-sided?
There's also this description of the company's "services" in the prospectus: "We offer a convenient and easy-to-use service for individuals and businesses to reach venture capital markets." But if the company has no clients, no revenue, no costs and no operating history, then what exactly is the service?
So what exactly does the company plan on doing? "We intend to offer venture capital to parties and companies in development. In addition we plan to offer business financing of various types to startup businesses and established companies." If this is a VC firm, you'd think it had the benefit of a little venture capital itself. And you'd be wrong. Its balance sheet consists of nothing but zeroes ? no cash, no working capital, no assets, no lines of credit.
Well, surely this company has one asset ? the nifty Web site address venturecapital.com ? right? Wrong. Go to venturecapital.com and you'll see that the site is under construction. Check out the registration for the Web domain venturecapital.com and you'll find that it's not registered to Martin. A guy named Jeffrey Zimmerman of Fenzi Designs, a company located in San Francisco, registered the name back in 1995.
Zimmerman says he's never heard of another company called Venture Capital.com. Furthermore, he says he fully intends to use the venturecapital.com site to launch a magazine. Just in case, I checked out venture-capital.com. That isn't Martin's, either. It's the site for well-known venture capitalists Draper Fisher Jurvetson. So why would Martin create an Internet company and file for a public offering under a name that he doesn't even own the rights to?
I wanted to ask him, but when I called the phone number listed for Venture Capital.com in its prospectus I was told that Mr. Martin was out of the office. I asked the gentleman who answered the phone if he was an employee of Venture Capital.com (after all, a new hire would represent 100% growth in headcount ? and the prospectus does list among the risk factors the following warning: "We may be unable to effectively manage our rapid growth."). He said that this was just an answering service. I have not heard back from Mr. Martin and I don't expect to. He's probably in a "quiet period."
Anyway, I've had it. After reading through this filing I came to the conclusion that I've wasted five years of my life writing about finance and I don't even have my own publicly traded currency to show for it. So here goes. I'm going to file for an IPO of this column. Here's a preliminary look at the S-1 of this brand-spanking-new corporation, RationalExuberance.com (somebody else has already registered that domain name, but that's a minor detail).
Corporate profile:
In the year 2000, our founder began researching the likelihood that unsuspecting investors would give us lots of money if we formed a company that would write about the business plans of other upstart companies. Our company will write about all the B2B and Linux companies that are going public and hope that by typical Internet-investor logic ("If Rational Exuberance writes about Linux, that makes it a Linux company in my book!") some of the money thrown at all these tech companies will somehow come our way.
Risk factors:
"We have a limited operating history and no revenues as of yet. Rational Exuberance has only been operational since April 1999 and for now it is a totally free feature associated with a totally free Web site. However, we plan on selling instructional manuals and offering on-site tech support to businesses that have difficulty downloading or understanding Rational Exuberance. (Note to aforementioned unsuspecting investors: This is what makes us like a B2B and Linux company!)"
"We are currently spending money hand-over-foot and have every intention of continuing to do so for the foreseeable future. The moment that we do start to show a profit, that money will surely wind up in the back pockets of all our officers, directors and their family members and friends and not reinvested in the company in any way, shape or form."
And of course, we need a forward-looking statement about the prospects of our business.
"The Internet is really, really big, and every day more people are logging on to it. So it stands to reason that as the Internet grows, more companies will go public and we will have more to write about. That will drive traffic to our site, and that is good for us. You're darn tootin'! If you don't believe us, just read all those surveys from IDC and Dataquest and other research firms about the explosive growth of the Web."
With a prospectus like this, I'm sure Goldman Sachs and Morgan Stanley will be beating down my door to underwrite this baby, no? As soon as they're done with Venture Capital.com, of course.
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