Seed Capital Tranches - Private Companies prior to listing

[noirua]

Many people often wonder how a company comes into being and how the Directors - as well as certain individuals - appear to have so many shares and options at the start. Good grief, we think, they've ploughed a lot of their money into this outfit and will work hard for its success because of that; or have they?

Seed capital, is paid in tranches that usually number 2 or 3. A company may require a sum of around $250,000, tranche 1. Each shareholder, normally numbering around 10, would each pay $25,000 for 25,000 B shares. Should they later enter the ASX., the Seed Capital Tranche 1 shareholders would be entitled to up to 50 times what they paid originally, when the company floats.

Seed Capital Tranche 2 would be used to secure, in the case of a mining company, tenements for future drilling and a sum of around $650,000 would be required. Tranch 1 shareholders would be issued extra free shares and a right to purchase more, if they wished to do so, in tranche 2. Tranch 2 new shareholders would be issued the shares, at say, an entitlement of 20 times the float value.

There are of course many variations.

On flotation of the company, at say $15 million, on the ASX., seed capital tranch 1 shareholders would be issued shares worth a flotation value of up to $1.25 million. There are obvious risk here.

Thus a fortune can be made by the early birds that can afford to risk $25,000 or so.

Life itself isn't fair, but then, if you'r not risk adverse you have opportunities in the future. Keep in touch with Directors of Companies, and who knows, they may let you in on a new company they're starting up.

Always remember the risks.

 

[Freeballinginawetsuit]

Hi Noira,

Thier is a classic example of your quote in a particular Nickle stock. A clear example of seed capital that enabled a company to pull itself out of the muck............when the banks wouldn't touch them! (and wouldn't risk hedging thier production/as thier might not have been any) .

A detailed post later when I have more time.........


Cheers.

 

[mmmmining]

Can you guys send me $25,000? I can issue 1 million shares of my company to you. I aim to list my company on ASX or TSX, or LSX, or NYSE, or NSX.....

 

[Mousie]

Can you guys send me $25,000? I can issue 1 million shares of my company to you. I aim to list my company on ASX or TSX, or LSX, or NYSE, or NSX.....

No probs mmmmining, where's your disclosure doc?

 

[mmmmining]

No probs mmmmining, where's your disclosure doc?

Give me your address, I will ask my lawyer forward you a copy. But My lawyer might be very busy, could be tomorrow, could be next month, could be next year. If you have not received by then, PM me.:

 

[Mousie]

Give me your address, I will ask my lawyer forward you a copy. But My lawyer might be very busy, could be tomorrow, could be next month, could be next year. If you have not received by then, PM me.:

Hmmm...piss poor form of a lawyer to actually think of forwarding DDs next year; get a better lawyer on your team 1st before thinking of getting my $25k investment

 

[noirua]

Provided you are in a good stable financial position, then moving into Seed Capital Tranches is an excellent way forward to riches. Risk is a factor and it remains the highest, short of gambling in CFD's etc.,

Stable financial position: A house fully paid for, no debts, $200,000 in the bank or investments, and either an excellent pension fund to come or a solid well paid job. In this situation it matters not, except to pride or greed, whether it works out or not, more opportunities will follow.

My first venture into Seed Capital Tranches was in March 2000, and yes, it was a dotcom company. ( ***** Please take what I say as an example as there is no way of my proving this. Prices are changed so the company, that still trades, cannot be spotted. It remains mega-high risk. )

I put forward $15,000 to obtain a seed capital interest of 5% with the promise of 20 times the value at the float price. I also had to sign an agreement not to sell within 12 months of the float which was tied in with a 1 for 5 option.

2 months later the company floated, very quick in the dotcom days. Oversubscribed like everything else and an opening price of $2.50 gave me $450,000.

12 months later the stock had tumbled as the boom unravelled. I could have sold for 60 cents, but I hesitated and they fell further. The stock reached 0.6 cents and were suspended. The options retired worthless.

Luck then kicked in as the two main directors sold the assets and produced a cash shell company. To their credit they took no fees or expenses, fortunate as there wasn't that much left. A mining company that needed a quote and had been refused, reversed into the cash shell.

The shares are now worth approximately 15 cents each today some 7 years later.

After that I turned down the next three Green Seed Capital Tranches, probably due to shock and yes, lack of funds after the dotcom collapse.

So be warned, it can sometimes be a long journey. The number of mining companies coming to market this year looks just like it did in the dotcom days. Hopefully it won't happen again??????

Good Luck

 

[noirua]

Can you guys send me $25,000? I can issue 1 million shares of my company to you. I aim to list my company on ASX or TSX, or LSX, or NYSE, or NSX.....

Yes, it sounds like a laugh, but most companies floating this year started that way. If you know the directors, I don't mean personally, but by knowledge of their other interests etc., and perhaps, email responses on company questions over the years. Then an element of trust is formed.

By trust I mean; that their performance and ability, qualifications etc., are proven.

Any offer is made by an official application form. Not by "send me the money and I'll send you some shares".

 

[mmmmining]

Yes, it sounds like a laugh, but most companies floating this year started that way. If you know the directors, I don't mean personally, but by knowledge of their other interests etc., and perhaps, email responses on company questions over the years. Then an element of trust is formed.

By trust I mean; that their performance and ability, qualifications etc., are proven.

Any offer is made by an official application form. Not by "send me the money and I'll send you some shares".

Trust me, I am serious since it is a serious matter. I have discussed with several of my very entrepreneur friends about seed investing. The prefer to get close friends or relatives involved at very early stage. Some of my friends even turn down my offer. Usually, $100,000 is minimum amount. There is no chance for people not in the circle get in because they don't want the benefit shared by strangers if there is any.

The one every Joe can get is normally a very risky one. The successful rate is close to zero. No matter how much you can read, the salesman always can outwit you. Very few might be the undiscovered gem, but the question is how do you know at first place?

Good luck with Seed Capital Investment.

 

[noirua]

The one every Joe can get is normally a very risky one. The successful rate is close to zero. No matter how much you can read, the salesman always can outwit you. Very few might be the undiscovered gem, but the question is how do you know at first place?

Good luck with Seed Capital Investment.

Hi, Mining stock floats have been very easy in the last few years, as I think we all know. In the days where every company added ".com" it was also very easy indeed. The mining boom is certain to end and the last ones in the minnows will be locked in; that may not happen for years, who knows.

"...the undiscovered gem. " At the moment virtually every mining float is got away, and the risks, although still there appear quite small.

 

[moXJO]

Great post on an interesting subject noirua.

 

[noirua]

All these new mining explorers coming to the market with plans to explore tenements that South Australia and the Northern Territory are falling over themselves to give exploration leases on, is as good news as it may eventually prove to be bad.

Piles of cash are making there way into Australia with all these bids and buy-ins to mines. Plenty of cash to buy.

Meeting in a bar three Directors armed with a wrath of mining qualifications and a legal brain, are about to set-up a new company. Lets call it Uranium Mining Extravaganzer Limited.

Two weeks later they meet again and the $250,000 is already banked to set the company up. Start off with a few tenements not far from previous mines and I'll send out the usual about the tenements being so close to previous finds. Then add we are using new technology surveying, "state of the art".
That should bring in another $600,000 and we'll float on the ASX at the end of the year.

We're all going to get 40 times the money we put in when the company floats. Almost an absolute can't lose situation. By the way I've got a few more Green Seed tranch options from my M8's coming up.

Is life this good for some, sure it is. How long will it last, and be sure, YES, we know who the eventual losers will be.

 

[BraceFace]

I think "sophisticated investing" in seed capital prior to a company actually listing is not a bad option.... BUT..... you've gotta do that research!

As previously explained, you need cash at the ready for this type of investment. No margin lending here. I would only use my own money for this, not borrowed money.

You need good advice. A lot of individual brokers are involved with getting these floats up and running, and if you have a good broker/client relationship, they can point you in the right direction. Only invest your money if they are investing their own private money. That's usually a good sign.

Be prepared to wait. It can take months (or years) before the new company actually gets listed. And... there's no gaurantee they actually will. That's the real risk. If they don't list, you've done your dough. Bad luck.

I was involved in a seed capital raising for a diamond company not so long ago. It was my first venture into this type of investing so I only put in $25K. As a seed investor I bought shares for 25c, held in escrow for 12months (ie I couldn't sell them for 12 months if they listed). When they eventually floated, the prospectus price was 50c and that's where they started out on the ASX.

Despite the fact that they are actually in production (not just exploration), the SP now sits at around 31c. A lot of seed investors probably baled out when they listed (doubled their money) and hence the SP drop.

I'm still ahead with unrealised gains, but my profit is minimal given the inherent risk from the outset.

I have still found it a positive experience and would do it again, but I would go in with my eyes wide open.

 

[noirua]

Founder members of Private Venture Companies receive about 3,000 votes for every Dollar, which are transferred into 3,000 shares when floated on the ASX. In addition they receive about 3,000 options.
Seed Capital 1 and 2 about 40 votes, to be transferred into shares and 40 options for every Dollar.
Not bad if it's a Mining float these days.

When the company floats each applicant is offered 1 share and 1 option for each dollar.

 

[noirua]

Quite a lot of investors wonder what is happening when their stock is suddenly hit by what seems consistant selling, both of shares and options. Quite often they notice blocks of shares, such as, 50,000 - 100,000 - 150,000 appearing amongst the deals - what is going on?

When the company was first formed the Directors would be founding members, followed by Green Seed capital one - giving 40 shares and options for each vote that cost the price of one share at IPO, and then Green Seed capital two - giving 20 shares and options.
These shares are put into ESCROW and cannot be sold for either a period of one year or quite often two years.
Once the escrow period is over there will be large stock holders, quite often, waiting the chance to reduce their holding. Afterall, wouldn't you, if your investment cost $25,000 and they now stand at $2 million for the shares and $1.2 million for the options, for instance.

Worth looking closely at the number of shares and options released from ESCROW.