Penny stocks and micro-cap companies commonly have the same problem. They lack revenues and human resources to achieve their goals and growth. Many of these companies have gone public too early or were forced to go public for one reason or another. Many of these CEOs thought that going public was the Magic Bullet. They figured being a public company was the answer to finding investors since many larger public companies are well capitalized. But the ugly truth is that going public does not guarantee that investors will buy your stock. In fact, in many smaller IPOs, the company has a best offering IPO instead of a firm commitment IPO. This means there was no firm commitment (or guarantee) from broker dealers to buy the stock before the initial public offering. This also means that the company has gone public and has no big investors to buy the stock in the offering, or the investment that was made into their company before they went public was not enough to fund the offering. This, in turn, means that the public company executives are scrambling around trying to find financing just to make their burn rate. So irrespective of whether or not it was a good idea for the company to go public in the first place, here are some ways you can use stock to grow a profitable smaller public business.
Acquiring strategic management with corporate stock.
A potential investor in a microcap company or penny stock will undoubtedly look to see if the management is capable of achieving their business plan or continued growth. Microcap companies should utilize their currency, also known as their stock, to attract and retain industry sector Professionals in their field. A well-rounded board of directors and confident management team will bring confidence in the marketplace and attract investors. In addition, a good management team will help successfully scale a business. A good board of directors is strategically connected to assure that the business moves in the right direction. When growing a microcap company, stock options and stock should be used to incentivize the management and the board of directors. Longer holding periods and clauses in contracts that state management and the board of directors cannot sell before a certain period of time will help achieve long-term objectives of the publicly traded microcap company or penny stock.
Buy profitable businesses with the public company stock.
Of course this is easier said than done, but public companies with small market caps and no revenues should be buying public or private profitable businesses. They can achieve this by buying income producing businesses with their stock. This is not easy. Mainly because many of the penny stocks and micro-cap companies with little to no revenues have market illiquidity. Generally their stock is not trading at a high enough volume to make it attractive enough for someone to exchange it for an income-producing property, since they will not be able to sell their stock if it is completely illiquid. What forward-looking thinkers & entrepreneurs understand is that by inserting an income-producing business into a public company that has no revenue, will make the public company investors understand that the company is now generating revenue. With a revenue-producing company comes stock buyers and this makes the stock liquid. In a buyout situation where a micro cap company does not have much liquidity, executives should leverage the future prospect that is likely to happen, that is, that investors will jump into the company once it is income producing. Public company executives with no revenues should overpay for businesses that are profitable and will inject cash into their public company. This is because the cost of being public and not running a profitable business or a business with no revenue will only lead to a lower stock price and eventually delisting. Or running a company in debt forever. Either one is not good for the public markets, the executives reputation, or the economy as a whole. Businesses that are profitable and will get the attention of investors can include, income-producing real estate, franchises, income-producing e-commerce businesses and just about anything that is income producing.
The buying of income producing assets and the art of bringing on management are the two best ways microcap companies can use their stock as leverage.
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-Nick
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