Posted on December 2, 2012
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Entrepreneurial companies must now consider a new regulatory risk when raising money for their businesses or negotiating an M&A transaction. Payment of finder’s fees to unregistered brokers could lead to corporate bankruptcy. It did so recently for a small biotech firm, Neogenix Oncology, Inc.
Federal and state laws mandate that professionals who arrange/negotiate capital investment or merger and acquisition transactions for a fee based on the success of their efforts must be registered as securities professionals. I decided when I got into the investment banking business in 1982 that, as expensive and time consuming as regulatory compliance might be, I would have to be registered. Our firm has chosen to incorporate its own broker dealer, but there are other options open to investment banking professionals.
It’s long been an open secret that some or perhaps even many business advisors have chosen a different path and raise money or negotiate M&A deals without registration. For many smaller intermediary firms, this has not posed a problem. Either their activities have not been noticed by the regulators or they are too small for anyone to care.
It now appears that the SEC may be using another approach to assure compliance – turn the accountants and lawyers into its policemen. In October 2011 Neogenix received a letter from the SEC requesting that the company “provide certain information relating to payments made to third parties (referred to as “finders’ fees”) in connection with the sales of the Company’s common stock”. Following up on the SEC inquiry Neogenix pursued an internal investigation and reported in its 10-K filed July 12, 2012.
“….. finders’ fees were paid to individuals and entities whom the Company has not been able to confirm were registered as broker-dealers or otherwise properly licensed under applicable state law to participate … read the rest
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Posted on November 14, 2011
Remember the fall of 2009? We had just survived the worst financial crisis since the Great Depression and the stock market was enjoying the early stages of a very powerful bear market rally. We could all breathe a great sigh of relief. Of course a few party poopers were still around to remind us in articles like this one published by the Wharton School that a mountain of debt built up during the bubble years of 2006 and 2007 would need to be refinanced by the middle of the next decade. This debt, measured in the trillions of dollars, encompassed both commercial loans–many generated to support highly leveraged buyout financings–and commercial real estate funding.
No need to worry, 2012 was a long way in the future. Well that future is now and Wall Street is again teetering on the brink of panic. Many firms that survived the crash have seen their profits–if not their revenues–return to past highs. Large profitable corporations have successfully refinanced much of their debt with very low cost long term bonds. For much of 2010 and the first half of 2011, strong high yield and leveraged loan markets enabled even middle market firms to stabilize their debt with relatively low cost funding as well. So the question is, “Have we dodged the bullet?”
Unfortunately, two recent reports answer the question with a resounding NO. The Financial Times, in an article entitled “Door Slams Shut for Corporate Have-Nots,” describes a two tier world in which a few very strong companies like Apple Inc. have taken advantage of the recovery to build up tremendous hordes of cash. On the other hand, weaker firms remain overleveraged and at extreme risk in the event of another financial crisis or a material rise in interest rates.
To accentuate the depth of … read the rest
Tags: Tags: Asset Based Lenders, Asset Based Lending, Asset Based Loans, Bank Lending, Bank Loans, Business Financing, Growth Equity Financing, Junior Capital, Mezzanine Debt, Private Equity, Senior Debt, Tranche B Financing
Posted on February 8, 2011
It has become increasingly clear that many large enterprises are not very good at innovation. The chart below, courtesy of Robert Ackerman, Founder of Allegis Capital, in the February 2011 issue of Global Corporate Venturing, shows that the share of U. S. Industrial R&D investment of corporations with 25,000 or more employees declined from 70.7% in 1981 to 37.6% in 2005. During the same period the R&D share of companies with 1000 or fewer employees increased from 4.4% to 24.1%.
This clearly supports the primary Capital Matters theme that future jobs growth will come from small and medium sized privately held businesses. But where will the capital come from to fund these businesses?
James Mawson has created an innovative new publication called Global Corporate Venturing which is built on two theses which may help answer this question. Mawson believes that global corporations have learned that smaller companies have advantages in innovation. He sees this knowledge playing out in two related trends:
- Even with today’s resurgence, IPO markets are a dim reflection of past glories. As a result both venture capitalists and private equity firms increasingly recognize that they must depend on acquisitions of portfolio companies by larger strategic firms as the only realistic exit for most investments. Increasingly strategic investment/acquisition has become a critical element in such firms’ growth paths as these larger entities control customer bases critical to the smaller firms’ success.
- The larger strategic entities are increasingly investing in early stage entities, often through formal internal venture capital organizations, to provide a window into new technologies and access to entrepreneurial talent.
Mawson estimates that there are now over 500 corporate venture capital organizations around the world. The largest of these, Intel Corporations venture capital arm, invests $1 billion per year in smaller firms. And the pace appears to be accelerating; … read the rest
Categories: Alternative Financing, Business Acquisition, Business Sale, Global Corporate Venturing, Growth Equity Financing, Innovation, Investment Banking, James Mawson, Junior Capital, M&A, Mergers, Mergers and Acquisitions, Venture Capital
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