Reverse Merger Information

How to go public using an OTC Shell to do a Reverse Merger

Reverse Merger Securities Regulation

Take a look at this chart. It shows the number of allegations brought by the SEC in previous years by category.

Look carefully and you will see actions against shell companies and reverse mergers exceed all other categories of actions put together.

The more you look at this chart, the more you can see that some people doing reverse mergers are abusing the privilege by doing bad things and they are not hiring attorneys versed in doing reverse mergers right.

The result is a higher degree of SEC scrutiny, and rightly so.

It is possible to do a reverse merger and be in compliance. But the fine points of reverse merger compliance are known only to a few.





One Big Reason To Go Public That Nobody Ever Talks About

Companies go public for a lot of well known reasons: to reward investors and employees, to help fund cash-intensive operations, and for acquisitions.
But there’s another reason that entrepreneurs and VCs don’t often talk about.
Obviously, you have to be ready — your books have to be spotless and your growth has to be obvious.
But if you’re the first company to go public in a new area, you get to define the market. Everybody can see how much money you’re making, how fast you’re growing, and how many customers you have.
Doug Leone, a partner at Sequoia, used the examples of Salesforce, which was an early pioneer in delivering business software over the Internet (“the cloud”), and Amazon, which defined e-commerce back when the Web was new.
“Look at Marc Benioff and Jeff Bezos,” said Leone. “They stole the microphone and controlled the industry. Neither said, ‘I don’t wanna be public, someone might look at my numbers.’” (Imagine him saying that last part in a whiny voice for full effect.)

Tony Zingale, the CEO who took Jive Software public last December, agreed that going public relatively early — with an $80 million annual revenue run rate and no profits yet — was important to give Jive a leadership position in social computing for the enterprise.
Jive had been around since 2001.
But, as Zingale said, “Marc Benioff’s screaming from the skyway saying he invented the social enterprise, everybody and their brother’s now saying they have a solution, including Microsoft and IBM. I wanted to be first to the pulpit, to speak with evidence and confidence about our customer base and our technology lead.”
Bill Gurley of Benchmark Capital noted there are exceptions. Like if you’re a once-per-decade icon like Facebook.
“If you work at an iconic company, you can do whatever you want. You can go public at a rodeo if you want. But most of us don’t work at an iconic company. A lot of founders want to be first and set the market.”
The VCs and entrepreneurs spoke last night at an event sponsored by online financial advisor Wealthfront. The purpose of the event was to encourage young companies to consider going public, despite the perceived hassles like increased scrutiny and more paperwork and management overhead.

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JOBS Act criticisms do not hold water

The crowdfunding and advertising provisions of the JOBS Act have been under heavy fire from those who say they are an open invitation to fraud.

Let me say, I hate fraud. I hate it with a passion. But I disagree.

With regard to crowdfunding and the advertising of 506 offerings, the critics say it will allow fraud to be perpetrated on investors.

However, Reg D, Rule 504 actually permits advertising of offerings and does not require any specific disclosure. The JOBS Act actually has much more regulation of offerings. No audited financial statements are required in a 504.

Yet, as much as 504 has been abused, we do not hear any voices calling for its removal. We do not hear claims of an epidemic of 504 fraud.

Reg A now does not require audited financial statements. Where is the epidemic of Reg A fraud?

In fact, it can be harder to get a Reg A approved and marketed than a full IPO registration.

Even when the SEC came out with its rule on seasoning reverse mergers, they did not call for this path to capital be closed altogether.

Communication is good. Disclosure is good. Financing innovation is a good thing.

Let’s not let the bad actors once again ruin it for the rest of us.

Venture capitalists and bankers have had their way with small companies for too long. Let the rest of us play the game.

As most people are ethical and honest (society could not exist if this were not so), the gains from financed innovation will always outweigh the losses to those who are warped enough to trample on the law.

Consider the value built by recent social media companies — the hundreds of billions in market cap totally overshadows any losses to fraud in social media companies, right?