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SHAKING the MONEY TREE 3/17/97
by Robert Metz
Metz, formerly the Market Place columnist for The New York Times, provides his wit and wisdom on a cross section of some of the hottest stocks around.
The opinions expressed in this column are solely attributable to Robert Metz and his sources.
The "Shaking the Money Tree" column is updated every Monday evening.
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Ben Ezra, Weinstein, Inc.: Going Public For 20 Cents On The Dollar
There is a difference between a shell game and Wall Street's "best efforts" work in financing new businesses but it sometimes eludes me.
Entrepreneurs usually lay out several hundred thousand dollars of precious capital to investment bankers. The bankers bring in accountants and lawyers and make an honest "best efforts" try at raising the money. If the effort fails, entrepreneurs are told to chalk it up to experience. Thanks.
If you believe in the entrepreneur/principals of Ben Ezra, Weinstein, Inc. you may be able to skip most of this cost and conserve a lot of capital.
The two streetwise principals have been launching their CapScape software, a series of interactive worksheets. CapScape is designed to guide ordinary individuals in drafting "Reg A" public offering prospecti so that they can then offer shares on the internet at exceptionally low cost.
Popular Capitalism from Ben Ezra. Good idea. This developmental stage company deserves to make it. Nothing is more galling than to learn a promising venture has been dashed on the rocks of Wall Street greed.
I am writing this piece not so much to alert you to an investment as to say 'if you want to go public, you can do lots of the work on your own.'
Richard Geist's newsletter Strategic Investing told about BNEZ (OTC BB) on Feb. 9. The shares were 1 3/4 on March 13. The stock was 2 1/8 before America Online indicated the stock was selling at pennies a share. BNEZ is suing because AOL delayed a correction for tiny BNEZ which has a total of 10 million shares. (There are 2.9 million shares in the "float" or trading supply.) The stock is not even listed in Standard & Poor's exhaustive stock guide. That is to say, to own BNEZ is to be a pioneer.
The company was set up in the summer of 1995 to offer technical advice to companies that were trying to raise money on the internet. That saved the major costs of printing and postage but not the huge expenses of professionally preparing SEC documents. So BNEZ developed a software program that would help businesses create their own offering documents.
BNEZ of Albuquerque, N.M., was then written up in a major financial publication. Hundreds wrote for the software. Business people, lawyers, accountants and financial counselors, all sought the materials. Forget the advice. Very little demand for that. As so often happens, the business was organized to do one thing, but the market place dictated a quite different strategy. (Some say a different thrust invariably happens.)
The principals set up a software development team and, in a wise move, or so it seems to me, included a professor of rhetoric. CapScape software puts major emphasis to the narrative material in the prospectus. Geist is an MD whose day job is instructor in psychiatry at Harvard Medical School. Dr. Geist confirms that narrative is key as the text must create a cogent document conveying the essence of the company. Geist writes: "CapScape is a tutorial, strategic guide, and an implementation guide for the narrative sections." The guide, which takes the business 85 percent of the way to a final document, has been tested on individuals who include many high school graduates and some securities lawyers as well.
The CapScape draft must be vetted by accountants and lawyers. But, according to Geist, BNEZ has rounded up both law firms and accounting firms familiar with CapScape. They have committed to finish the process within specific (low) fee schedules. BNEZ also has a printer who agrees to tie in the templating of CapScape to official financial printing forms.
Geist writes that one is thus looking at completing a document with financials and legal and accounting opinion for about $25,000: "In the scope of finance, that figure is revolutionary. Generally legal fees start at $50,000 to $60,000 and go up and that does not include accounting."
On the other hand, I am aware of one highly sophisticated and well connected individual who recently had the legal work for his prospectus done for $25,000. I doubt many entrepreneurs could win similar low fees.
CapScape software has a limited market with an indicated total sale of 60,000 units. But BNEZ has already booked orders for 1,000 at $1,200 a pop. For six months after purchase, the owner can access BNEZ's website to download any changes or upgrades. Thereafter, upgrades cost $300, which is how the company has decided to deal with multiple use issues.
BNEZ marketers have created lists of financial planners, accountants and so forth for its telemarketers. They have tested their scripts and, in the test phase, they have a closing rate of 9 percent. That means that for every 100 calls they get orders from nine, said to be "extremely high" returns. Keep in mind that the concern has a scary (to me) 30 day no questions asked return policy. It is not yet clear how returns will affect revenues. But results to date are encouraging. BNEZ may well earn 13 cents in the first calendar quarter of '97 and is "on track" to earn 40 cents in all of this year.
Management, which spent $1 million developing CapScape feels confident it would take a competitor six months to a year to create rival software. Meanwhile, management feels it would cost a large company three times that and take them twice as long to develop a similar product.
(By way of explanation, The New York Times' Bernard Weinraub reports that the movie, Shine, done by an independent film maker for $4 million, would have cost a major Hollywood studio six times that amount.)
The software is copyrighted and trademarked. It is hoped that the jump on the competition will allow BNEZ enough time to establish its name and develop substantial market share before others mine this niche.
Another BNEZ product, Private Placement Master (PPM) is due in the Spring. PPM allows the user to write a private placement document. A third new product, Personal Market Analyst (PMA), teaches people how to read prospecti and memoranda as well as 10Ks, 10Qs and brokers' reports. PMA will also allow users access to a special server that will tie into the Edgar system and download Ks and Qs. Once documents are in hand, an autoscanner ferrets out catch phrases often used to hide key financial facts.
Co-founder Jack Ben Ezra did six years as a Dean Witter investment banker. That's a key resume item as is his venture capital experience. He has worked both the retail and operations sides of the brokerage business.
Co-founder Michael Weinstein was assistant general counsel in the White House Office of Administration under Reagan and Attorney Advisor for telecommunications and computer systems, Office of Management and Budget (OMB). He was also general counsel for Perot Systems during the hard fought litigation with General Motors. He founded Find Dad, the largest private company collecting delinquent child support payments.
Obviously, the two have solid credentials. But there are risks. BNEZ is moving from the developmental stage to a sales and marketing concern. There is, as Geist points out, major risk for any firm doing this transition.
Other risks: BNEZ must generate the cash to manage potential rapid growth. CapScape's limited-market means other products in the pipeline will have to succeed for the concern to establish its long term viability. You should assume that should you invest, you could lose all of your principal. |
