Investing / Private Equity / Start-ups / US Markets / World Markets

Don’t take wooden nickels

Grace Century,Scott Wolf, Dubia, FSA, scam, SECThe old proverb “don’t take wooden nickels” has been around for ages. It is something that you say when someone leaves to tell them to be careful and to take good care of themselves. It serves as a warning to the unsuspecting and naïve, that when something sounds too good to be true:  Beware.

The FSA and the SEC (Financial Services authority and Securities and Exchange Commission) mandates are centered on this in order to protect individual investors from unscrupulous fraudsters.

Rightly so when at one time, almost a century ago when there was no internet and there were no fingerprints or central data bases, schemes were rampant around the world as con-men stole funds at will.

Sadly, there will always be people who find it easier, for some unknown reason to me, who would rather try to make $1.1MM illegally than $1MM legally. These people are nothing short of sociopathic, who feel that society’s laws just don’t apply to them.

Today

Grace Century,Scott Wolf, Dubia, FSA, scam, SECEven in the age of the internet, where the world is a few key strokes away, these thieves have managed to evolve with technology. Let’s face it, the internet is still the Wild, Wild West, as there is little or no policing of what is put online and people can post anything in multiple portals. Carbon Credits, FOREX, Palm Oil, land, buildings, shipping containers, securities (and the list goes on)–they are all alternative places for legitimate opportunities, have become breeding grounds for the scam artists.

I was the recipient of one such call. They had suggested they were following up on someone who had said that I requested a call.

Clue #1.  First of all, Grace Century only responds to requests for return calls after filling out a form and this call was from someone who was in Forestry. Wow, I thought, I can grow my own trees or have someone do it for me and, oh with a reasonable return. OK…let’s dig a little deeper.  I asked the salesman what kind of distribution they had (and so what am I going to do with a bunch of timber?). The representative said it was pre-sold, however it could only be done in the country it was grown (a very small South American country). I asked about insects or fire…since I have been to this country before, outside the main city (and I use that term loosely).  It’s a jungle!  ”Oh don’t worry about that, we haven’t had a problem with insects.” And get this, he says: “The TREES are FLAME RESISTANT…they don’t burn!”  How lucky could I get?

I am not a forester, but I don’t think I have ever heard of a tree that doesn’t burn.

Grace Century,Scott Wolf, Dubia, FSA, scam, SECReaction

The FSA, in the U.K. has been especially aggressive in trying to combat these entities, and rightly so. As usual though, I feel things swing too far the other way. Media campaigns, inserts and Post Office posters (usually reserved for Jesse James), have alerted the public to be wary and mindful. “If you don’t recognize the number…don’t answer!” With the constant barrage of telemarketers contacting prospects at all hours of the day, people have become afraid to even pick up their own phone!

Will this help? Yes! I promise you that nobody will get you into any deal on anything. As a by-product, since I don’t memorize a lot of my numbers, I’ll save a fortune on my social life too. Your money will continue to grow at a lofty 0-1% under your mattress and you will sleep sounder and sounder as your mattress becomes bigger and bigger (although your chiropractor might disagree).

The problem

Talking about putting a wet blanket on top of logical and needed investment

Real opportunities get the door slammed shut in their face. 52% of the U.K. GDP is attributed to small businesses. That number is at 50% for the U.S., but is credited that start-ups generate as much as 75% of the new hires. Small businesses (fewer than 50 employees) in the U.S. employ 50% of all the private sector.

The truth

Let me explain the life cycle of a company.

Start-Up

Every company that has ever been established from the beginning of time, or ever will be started, had its beginnings in the exact same way. Ford motorcar has. Apple has. Facebook has. Google has. The corner Chinese takeout and fish and Chips have. Most entrepreneurs start with their own cash or capital of friends and family. This usually is from $1 until about $2-3-MM.

Early Growth

In the old days, (like before 1980) this is where banks stepped in. You had a working established company. You had a 3 year business plan and the bank lent you money. No more. The banks have entirely left this space and thus creating a void.

The next step usually starts with Venture Capitalists, funds, and possibly hedge funds. They step in at about $20MM. The problem with this group is that they have pigeon-holed themselves so deep that they refuse to look at any risk. They want to come in after the heavy lifting has been done, take a substantial piece of the pie, and dictate the entrepreneur’s vision. They will not even entertain a conversation unless there is positive earnings and usually in operation for two years.

So what about from $3MM to $20MM?

The Answer

There is a place for Angel Investors to fill this middle void.

Can investors make 50…100…1000% returns on investment? Did the original investors in Ford, Apple, Google, and Facebook see those returns? Of course! Is there risk? ABSOLUTELY!

Is it a scam? Of course not.

The starting point is due diligence. If you cannot or won’t conduct it, then you need a group like Grace Century to do it. By the way, due diligence should never stop. Use of funds and ongoing monitoring of these funds is essential. Next, you need the right management of the company you are investing. This has proven to be the most important thing I look at even more than the business.   Afterall, a boat is only as good as its captain.

davy crockettGetting into an industry that has a “clear growth trajectory” is also important. I have never been excited about investing in a “me-too” firm either. That’s someone doing the exact same thing only in an unserved geographical location.

I want an organization to have clear and distinct advantages, a disruptive business model or be the first in a new field or industry. This comes with its own set of challenges, but to me it is the most exciting.

In conclusion, enticing opportunities present themselves every day. This sector of investment is vital not only to the firms needing the capital, but the governments walking a fine line of protection and growth that comes from these new firms.

There will always be more wants, needs, and desires for whatever capital you do have access to. I will just say my favorite saying that I preach to all of my people: “If you are going to throw the opportunity into the garbage make sure you understand what it is first, and make sure it is being thrown away for the right reason.”

Happy investing.

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