It’s called a reverse merger. IPOs are expensive.

Reverse mergers may be less common, but that doesn’t mean they aren’t a valid way to become a publicly traded company.

That reminds me of a videogame company (Majesco) that “merged” with a publicly-traded company that was completely unrelated to games, just because they wanted their trading letters - (COOL).

Damn techcrunch blog startups is getting extreme boring.

Suicide startup!

pump dilute pump and dump

Gee Mark it would be nice if you could provide some examples of “…rarely ends well…”

Your exact line was: “This is a common way for startups to get liquidity fast, and it rarely ends well.”

You continue to show your ignorance on so many topics. BTW ‘ignorance’ is defined as: “ignorance n. The condition of being uneducated, unaware, or uninformed.” For all you folk who think I’m being mean.

While you’re checking into the examples for “rarely ends well”, also check for examples of companies where it worked out great.

Raising money through venture capital is only one means of financing early stage companies, and depending on who you talk to not the best way either.

I honestly don’t understand why Mike continues to support your writing, other than for the flaming comments you continue to make to generate page views for the ads.

Yawnnnnn… excuse me, your stories are making me sleeeee…..

http://fakesteveballmer.blogspot.com

Rarely ends well . . . unless you fully embrace and own the sketchiness of the reverse IPO practice . . . oh, like you know, Marchex - they are killing it - but they are also sketchy - perfect fit!

@Coffee Man: I assume Mark wrote ‘rarely ends well’ because this kind of strategy almost never does work out for anyone other than the promoters. By the time they are able to liquidate their own position, the entrepreneurs are typically stuck with a pile of thinly traded stock that isn’t going anywhere.

I agree that the wording in the article around the RTO indicates that Mark isn’t really familiar with this kind of transaction, but I can’t think of any cases where I’d recommend this approach to funding a tech company.

Wow, that is crazy. I didn’t even know there was a competitor to Facebook. Facebook, like many other sites, has turned over to the Dark Side with the more money they have made. Another classic example of this is Google and their new and clever pay us to get a page rank.

I didn’t even know there was a competitor to Facebook

Yep, me too…..compare to $$$ funding of Facebook, they(college tonight) are way out of their league.

Nat
http://www.workersinc.com

To Daniel #9:

I disagree with you;

“…By the time they are able to liquidate their own position, the entrepreneurs are typically stuck with a pile of thinly traded stock that isn’t going anywhere…”

only because it really depends on the ‘intentions’ of the board and founders (depending on who owns majority) after the RTO.

If they are interested in promoting the stock and dumping their shares as a way to get wealthy while taking advantage of the current buzz around social networks, yes it will end poorly.

If however their intentions are to build a solid company by using the public markets to raise money, rather than going to vc’s, all the power to them.

Building companies using the methods they are currently taking - happens every single day in North America. Albeit the tech field hasn’t really gone this route, it is a very legitimate method of building a company providing the intentions of the people behind the endeavour are honorable.

Unfortunately because of promoters and scam artists pumping and dumping stock, this method does get a bad wrap - but I will debate anyone on the validly of this method for well intentioned companies.

Back to College Tonight; perhaps Mark could have interviewed them regarding their plans, why they went this route, what their intentions are, etc….etc….etc….instead of slamming what is just another way to fund a company.

This is nothing more than Mark being too lazy to write a good article, and diving into the pros and cons of this fund-raising model for the many TC readers involved in start-ups right now.

This is Larry C. And I am a recovering college marketer. And this IS a big deal.
http://www.yelp.com/biz_link?b.....mz1k3tMM4A

The tipping point for college students adopting a *new* site (not necessarily CollegeT) is about 9,000 students at 3-5 schools.

Coffee Man: The reverse IPO is icky and a cliche cautionary tale in how NOT to do business

reverse merger

creative form of funding… thanks for the informative post, once again!

Sounds like a classic pump and dump. The sad thing is people will probably buy this stock now because of this article. Today is a win for them, and a loss for TC.

Coffee Man, could you provide examples where this strategy worked in building a “successful” company. I can mention Terramark, but whom else?

Larry #13, & 14:

Still hyperbole. You’ve given no examples and no good argument, just another cliche on the bad end of an RTO. My point is still waiting for knowledgeable debate.

For those well-intentioned companies, this is a legitimate way to raise capital to fund and build a company. Whether you’re selling equity to a vc, or selling equity to the public markets, you’re still selling equity. The difference is who is taking the risk. Equity is still being sold to an investor.

Going back to the myspace deal, the company had little or no revenue, and when sold for $580 Million - reportedly the founders had about 10% equity left in the company. If that is the case 90% was sold to VC’s who brought up the value and then sold the company off. What seemed like an overpriced deal at the time, now seems like a good buy based on the market value myspace would generate if sold today.

Try and tell me if the founders had gone the same RTO route and diluted their positions to the 10% level publicly instead of selling off to the vc’s that it would not be where it is today. The key here was the management.

Like I said it all comes down to the people holding majority interest and their intentions for building a company.

Try and comment on the validity of the people doing the deal and less on being stereotypical. Are all black people the same, asians, southern folk, are men smarter than women, etc… etc… etc…

There is a far more intelligent way to debate then spouting generalities.

To Fabian:

Checking on a tech company (the name is not coming to me right now) going through the TC company index. The company is out of Toronto in the kids sector. They did an RTO on the TSX Venture Exchange, and a private placement to satisfy the market requirements for a tech company. They were in business for a number of years before doing this, and wanted to use the money to acquire other businesses. With 12-18 months they graduated to the full Toronto board (the Venture is for juniors).

The company president just stepped down and the former head of AOL Canada I think is running the company. The former pres did admit in a recent news release that he felt he made some mistakes along the way, but they have a solid plan for the future with solid management at the helm. Which is exactly my point.

For another industry success story Ultra Petroleum (UPL) on the Amex is a company that started this very way and now has something like a $25 Billion market cap. This one is personal because I’ve known the founders of this company now for about 10 years.

Will get back to you (with links) when I find the name of this company in tech in Toronto.

Fabian,

Got my Toronto companies mixed up.

JumpTV used the same RTO strategy to get a public listing and is the company now run by Jordon Banks the former head of ebay Canada.
It was this company that said they made some mistakes.

JTV is the symbol on the Toronto Stock Exchange.

Still looking for the name of the kids site that did this.

Will have three examples of legit companies when I do.

This could have been a good opportunity for Mark to discuss the various ways companies are out there raising money but instead he took the easy road and slammed the method.

Coffee man - you GO girl!

Any company with a Crescent and a star in their logo is poorly run.

Fabian:

August 11, 2005 Iron Capital Corp a company listed on the TSX-V in Canada did an RTO of Kaboose. Now listed on the Toronto stock exchange, Kaboose has about 94M shares outstanding and closed today’s trading at $2.73 CDN. Symbol is KAB on the TSX.

I thought TC covered the company a while ago, but I couldn’t find any info here. Perhaps it was Business 2.0 although I’d have to go back over my copies for the last year or two.

Former AOL and Microsoft executive Craig Wallace is President and COO. You can visit their web site for more information and their news releases back to 2005 where the whole RTO process is explained.

So back to the original post by Mark, I think this well illustrates that by writing a story about the management of College Tonight and their intent with the RTO, that it would have provided more value to the readers of this blog, than just blindly slamming this method of raising capital - which is just content flaming as far as I am concerned.

Competitor? maybe not. They just happen to be in the same space I think.

#22 - Don, are you making fun of pakistanis?

Coffee Man: I don’t get why you perceive my post as “slamming” anything. It was a quick news piece about an unusual way for a Web 2.0 company to raise some money. Sure, I could have interviewed the founders to get their perspective, just like all reporters could research all of their stories more deeply. But in a lot of cases, that’s simply not the best use of our time. If you disagree, then fair enough - but you hardly have grounds for calling me lazy or questioning my employment. I mean come on - chill out a bit, will ya?

#6, 24: Yea, I agree - College Tonight hardly competes with Facebook right now, but they are a competitor as far as their intent goes.

Mark:

You know … and I am not trying to slam you so please do not take it in such a way … the press is very irresponsible in how most news are reported. I, stop reading or watching news because it is all the same insensitive, irresponsible, ultra filtered, one side sort of thing over and over. There is zero objectivity. So, even though I think it may be poor form to question somebody’s employment, I do think that research needs to be complete and through; especially on a site like TechCrunch.

So, to Coffee Man’s point, “This is a common way for startups to get liquidity fast, and it rarely ends well”, is a very strong statement. As I mention, I know of one, Terramark, did a reverse IPO and the company is growing. In any case … I do feel there should be more objectivity in reporting and some comparison for education sake would have been a good idea.

Now … how do I get my news? Well … I read them on different web sites with different orientations and in different languages and I try to extract the actual news from distilling content from them. Yeah … it is a hard way to go about it. But I try very hard to not be a “consumer”.

Mark,

Perhaps questioning your employment is strong for one post, however you have a habit of adding your uninformed and often very inexperienced opinions into posts where they are not at all necessary.

Your post was just fine, until you mention a statement such as “…and it rarely ends well…”

Until that little nugget, the piece didnt require any further background work. Once it was in though, you should have provided some basis for that cheap shot.

As for chilling out, no problem once you realize those types of comments don’t need to be in a piece. That’s not why we all come here.

the other social network (www.vois.com) you recently wrote about and got many negative comments about traded on the OTC bulletin board. This company trades on an exchange even lower…. The pink sheets!

Just a few comments…

First, their home page. Jesus God. Cheesy line drawings of college kids. The third picture actually shows a bunch of frat boys getting drunk (one is holding what looks like a beer can). Is that what they would have us believe college life is about?

My other comment is that in all of the drawings, every one of the college students appears to be white. Don’t blacks, Asians, and other races go to college these days.

Thirdly, the strategy of doing a “reverse merger” (becoming a subsidiary of a badly-run public “shell” corporation) is one of the oldest tricks in the book to get quick liquidity, and you’re right, it usually ends up failing.

It is a really, really bad strategy in this case, because you have a joke of a website being absorbed into a flop of a public company which isn’t even remotely involved in the commercial internet.

Is that what they would have us believe college life is about?

uh… yes.

Hey Joe,

As per my previous comments, your generalities on RTO’s are ridiculous. I suppose you’re Mark’s buddy backing him up on his ridiculous comments.

If you have some experience in the financial markets please do tell.

Waheed Rehman ali-Akbar

No, I think having symbols associated with religions in a Co. logo is unwise.

Mark, there is no such thing as the “NASDAQ Pink Sheets”. To be clear:

“The Pink Sheets and the OTCBB are competing quotation services for OTC securities. The Pink Sheets is a privately owned company, while NASDAQ operates the OTCBB.”

I thought it was important to point this out because affiliating the Pink Sheets with the NASDAQ adds a level of credibility and trust that is not warranted.

Also, reverse mergers are actually an incredibly successful method of taking companies public. There are hundreds of great examples of good companies taking over shells via reverse merger. Many Chinese companies with millions in revenue and profit are going public on the OTCBB via reverse merger.

Best,
George

Reverse Merger Facts from The Merger Company

Nearly half of the companies trading on a small cap exchange went public by way of a reverse merger.

Most private companies that go public by way of a reverse merger experience higher evaluations once public.

Most private companies have an easier time raising capital after going public due to shareholder liquidity and reporting requirements.

Whether your company is a fledgling start up or a well established business with substantial revenues, by taking your company public through a reverse merger you will be among an elite group of dynamic and hard working entrepreneurs who have made the process work. Examples include;

Armand Hammer, world-renowned oil magnate and industrialist, is generally credited with having invented the “Reverse Merger”. In the 1950s, Hammer invested in a shell company into which he merged multi decade winner Occidental Petroleum.

In 1970, Ted Turner acquired control of Rice Broadcasting (WJRJ-TV) in Atlanta, Georgia. Eventually this company became Turner Broadcasting and was acquired by Time/Warner and later merged with America Online. Ted Turner is now one of the wealthiest men in the world.

Acclaim Entertainment (AKLM) merged into non-operating Tele-Communications in 1994.

In 1996, Muriel Siebert, the first woman to purchase a seat on the New York Stock Exchange (NYSE), reverse merged her discount brokerage house, Muriel Siebert & Co., into J. Michaels, Inc., a defunct, but publicly traded Brooklyn furniture company. The stock has since traded over $70 a share.

In 1999, Tony Robbins, best selling author of “Awakening the Giant Within”, conducted a reverse merger with GHS, Inc. whose stock soared from $0.75 to over $12 a share.

Other well known companies that can trace their roots back to a successful reverse merger with a public shell include Blockbuster Entertainment, Inc., Occidental Petroleum Corporation, Waste Management, Inc., and RadioShack Corporation.