"Ground Floor" investing in companies

[feeding_the_fire]

Hi everyone,

I read a magazine article the other day about how Paul Keating turned $11,000 into $23million through a company called Lake Technologies. Apparently he got in early at the pre-IPO stage when the company was looking for early investors… picked 11 million shares at $0.001 and eventually they went up to $2 or something once the company listed. (Although I see LAK is now delisted! Lol)

Anyhow, I was wondering what people thought of this. There are various companies out there offering the opportunity to get in "on the ground floor" when companies are looking for early finance. Obviously, the above is an extreme example - I imagine that would happen roughly once every thousand companies, and I imagine the risks are extremely high.

Has/is anyone involved in this very early investing in companies?

Thanks.

 

[karmatik]

Hi

I think you would need to have a contact in the company to do something like this, a contact that most people wouldnt have. I would assume it would be very risky investing in these start up type of companies. Richard Farleigh of 'Taming the Tiger' fame made a lot of money this way in UK companies

 

[nioka]

Hi everyone,

I read a magazine article the other day about how Paul Keating turned $11,000 into $23million through a company called Lake Technologies. Apparently he got in early at the pre-IPO stage when the company was looking for early investors… picked 11 million shares at $0.001 and eventually they went up to $2 or something once the company listed. (Although I see LAK is now delisted! Lol).

I wonder if he was investigated for insider trading?

 

[feeding_the_fire]

Why.. I don't think it's insider trading? It's more that he hopped on board early and got lucky!

 

[doctorj]

I think generally, the only people that make the mega-bucks from holding passive investments in companies are those that get in at the pre-ipo stage. They do bare significant risk for doing so, but the rewards are definately there for those to do so.

It's an entirely different game to what you and I are used to and relies so much on your relationship with and trust in management. Remember, selling isn't a 3 day proposition in these companies and more fail than succeed.

I'm currently reviewing an opportunity of this nature in an IT company. By all accounts there idea is fantastic, but I'm far more likely to pass it up than take it. It's a case of finding the wheat amongst the chaff...

 

[feeding_the_fire]

So in a nutshell... higher potential returns, higher risk - more chance of losing it all - and harder to get into?

 

[nioka]

Why.. I don't think it's insider trading? It's more that he hopped on board early and got lucky!

Why not? He was in a privileged position wasn't he? Like he got "lucky" with the piggery.

 

[feeding_the_fire]

Well, I don't know much more than what was in the article, but it said that the company approached him and that was why he invested his initial $11,000.

 

[Kauri]

Why not? He was in a privileged position wasn't he? Like he got "lucky" with the piggery.

Seed capital before the company is offered up for listing as an IPO to the punters can't be insider trading. Have a look at a lot of the recent listings and see the amount of seed capital and the price paid per share (not to mention options). Apart from the original owners there are more often than not a sprinkling of "big names" in there, tends to lend credibility to the listing. How many people would have bought into LAK on the strength of Keating having a large % holding, without noticing that he only paid banana republic prices to get it?