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Dana Parker


Many of my clients have asked me over the years how they can best bring investors into their companies. As a threshold matter, I make sure they understand the importance of following the securities registration exemption guidelines set forth by the Securities Exchange Commission (SEC) for approaching investors and offering those investors stocks, membership interests, or other securities in a business.

The SEC’s regulations do allow for a very small amount of carefully considered creative financing in the public offering space. A creative financing opportunity recently presented itself that worked wonders for my client, Jack, the owner of a small, privately-held information technology firm.

Jack had struggled for quite some time looking for an investor to infuse much-needed capital into his business to help complete the development of some new, innovative technology. The challenge was that Jack’s company was an unknown entity in the marketplace. Neither banks nor individual investors wanted to take that chance while the banking markets were recently in deep distress. Jack met a potential investor with a deep pocket at a networking event, and came to me to help him figure out a way to do business with the investor.

Jack, the potential investor, and I sat down with an underwriter and devised a “reverse IPO.” In this situation, Jack’s young, vibrant company that held innovative technology would merge with a publicly traded technology company that formerly enjoyed a stellar reputation in the marketplace, but which had been swept overboard during the dot com bust of the late 1990s.
That company went from being heavily traded on the New York Stock Exchange during the dot com boom, to being barely traded on the Over-the-Counter markets (commonly known as penny stock traded on the pink sheets) after it all came crashing down.

Jack sold his company, new technology and all to a newly formed corporation, and the ailing public company did the same. The new corporation was then infused with the investor’s cash and cash from a bevy of additional investors. In this way, life was breathed into the resulting company, and the two old companies each ceased to exist. The investors each then purchased blocks of stock in the new corporation for significantly less money than the public would pay later on.

The underwriter then guided the release of the newly formed company into the marketplace with an initial public offering. This caused yet another wave of capital to pour into the new company from the public. They now had plenty of cash to complete the development of Jack’s newest technology, and everyone’s stocks increased significantly in value.

Shaune B. Arnold is co-author of the best-selling book, “Fight For Your Dreams: The Power of Never Giving Up!”;