The weekly newsletter for Fed2 by ibgames

EARTHDATE: August 24, 2008

Inside Scoop page 1


SUCCESSFUL INITIAL PUBLIC OFFERINGS FOR DUMMIES

or Why Sharks Won't Share
by Jezz

Your comm unit crackles with a message from Chummy: "Woohoo! I've got all my trader credits and I'm off to start my own company!"

Unbeknownst to our innocent protagonist, dark shapes are rising through the blackness of the void and the dreaded fins begin to break the surface of Fed Space. <Cue duo-tonal instrumental.> Beneath the scanner range of all but those immediately involved, the circling fins, drawn to the sweet scent of fresh blood in the water, suddenly erupt into a feeding frenzy of share snatching.

Having well and truly chummed the space waves, brand new Industrialist Chummy thinks he has just become popular and announces to the universe that there are still a few shares left if anyone wants them. The pain hasn't registered yet, and it probably won't for about 3 or 4 weeks. Then our little Chum will search in vain for anyone willing to sell back his precious shares, but the fins won't rise.

Ok... common enough scenario there. But really the first mistake was not the announcement on comms. To understand what went wrong we have to dive a little deeper into Chum's business plan. Oh wait! There wasn't a business plan!

If you were starting a company in the real world, one of the first things a potential investor would want to see is your business plan. The financier wants to know if he is likely to get a good return on his investment in you and he is hardly likely to be thrilled with spending 1500 groats on a share then receiving a dividend of 100 groats and a demand for the shares back.. You would want to attract investors who have the interests of your company at heart rather than the ones who would break up your empire and sell it off piece by piece for the fastest financial return and it's in your interest to do some planning and offer a reasonable deal.

This is where the social and business aspect of Federation really comes into play. You should be able to offer an investment deal that will satisfy the financiers and help your company at the same time. But you have to do this BEFORE the IPO because all those fins are out there, circling the prey, watching for traders who are close to completing the required trader credits.

Now how do you go about putting together a reasonable offer? Well first you need to locate some friendly financiers. You need to be able to tell them how long their groats are likely to be tied up in your company before they can expect a decent return. Remember that the financier gets the big pay off either when you link a planet and become a founder, have a share holder rebellion or go bankrupt. The dividends are small potatoes compared to what they will make when you promote to Founder so offer a deal that makes sense financially and set the terms well before you IPO.

A sample offer might go something like this...

"I will IPO with a share price of 1500 groats. During my time as Industrialist and Manufacturer I expect to issue dividends with a total just in excess of that amount. Seven weeks after I IPO I want to buy back half the shares that you've bought but I expect to become a founder within two weeks of that so you'll make a good profit on the other half of the shares.. I will make sure you're ready to buy my shares before I IPO in return for your agreement to sell half the shares back to me before I become a financier."

Of course if you plan to promote to financier and stay there for a while or be a long term manufacturer, you'll want to customize your offer and your share price. The financier might have a counter offer or he might be happy to accept those terms. Once you have your financing confirmed with arrangements for buying back shares at the appropriate time, it might be best to not splash around too much and draw attention to your movements. You want to give your friendly fins a chance to get the shares before the feeding frenzy starts. Then stick to your plan and make sure you keep your financiers friendly. Trying to lever the jaws open once they take a bite out of your company is an exercise in futility. You have no leverage what-so-ever.

Next time I'll talk about share pricing and why you shouldn't start pestering the financiers for your shares the minute you promote to Manufacturer, but before I go... There is one other way to get a good deal on recovering your shares. Just marry the financier.


Fed2 Star index Previous issues Fed 2 home page