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Author Topic: RFI re. convertible bond backed by a real company's shares  (Read 782 times)
woodrake
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September 02, 2013, 04:52:50 PM
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EDIT: Moved to the Litecoin forum.

Since the cryptostocks space is booming rather at present with ever-increasing trade volumes but a dearth of diversity in terms of the securities available, I have been wondering if I should use it for my main business.

I cannot reveal too much, but I am in the process of setting Memset on a trajectory towards IPO on AIM or NASDAQ. To that end we are likely going to end a decade-long refusal to dilute and sell some equity to an investor such as the UK's Business Growth Fund. However, that is a painstaking and expensive process compared to the ease with which funds can be raised here.

I would therefore value your collective thoughts on the following: a convertible bond backed by real Memset shares which would receive a proportional share of dividends, but in the near-term would convey no rights (they would not be real shares). However, on floatation on a real-world public exchange those bonds would be converted into real shares. I think in practice I would make the backing shares my own, so that the bond were in effect a personal contract between me and the bondholder on the above basis. Having the virtual contract with the company directly could cause legal complications. The funds would however be put into Memset as growth capital.

Obviously there are many details missing here, but I'm more interested in a view on the viability and likely popularity of such an offering. The security would be hard-linked to fiat of course, which might make it undesirable, but the potential upside could be very large; Memset's larger competitors are commanding 6-7 times revenue multiples, never mind EBITDA multiples, and we'd likely be offering the bond at a much lower multiple. The bond's yield would be relatively unexciting on that basis, perhaps 2-3% (we make much more profit than that but leave most of it in the business - we're about growth, not a lifestyle business).

An alternative approach would be to treat the bond more like a fixed-interest preference share or loan in which case the yield might be more like 7-8%, though that would lack the potential upside of dividend growth in future should the profits start to get very large (which according to my plan, they will).

Any views on how this might be regarded under UK law would also be appreciated. I am of course taking advice from my usual advisors, but they are shooting in the dark to a large extent. My biggest concern is that I'd end up making a massive income tax or capital gains tax bill, although in the case of the latter I do get entrepreneur's relief which would cover it I think. Thoughts welcome! Smiley

Kate.

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September 02, 2013, 06:12:34 PM
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the regulatory hurdles for listing on AIM are very low.

the AIM is nothing compared to the Nasdaq. AIM is like the United States' OTC Bulletin Board or Pink Sheets, just like the cryptocurrency exchanges


I am attracted to the capital formation available here but these exchanges are not in line with any securities regulations anywhere
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September 02, 2013, 08:40:25 PM
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the regulatory hurdles for listing on AIM are very low.

the AIM is nothing compared to the Nasdaq. AIM is like the United States' OTC Bulletin Board or Pink Sheets, just like the cryptocurrency exchanges

Specifically we are considering the Nasdaq small cap rather than the main exchange, which has considerably lower requirements and is comparable to AIM. AIM remains somewhat illiquid however, hence the contemplation of Nasdaq. I have a fondness for the Bay area so would consider spending half my time there; we already have an infrastructure deployment in San Jose (currently in beta).

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I am attracted to the capital formation available here but these exchanges are not in line with any securities regulations anywhere

I appreciate that, and the investors would be taking a risk. However, it would also be an opporunity for them to get in early on a potentially valuable stock. The main attraction is the low cost of entry here; even with AIM you're looking at up to $1m to get listed when all is accounted for. Regardless, I do not mean to compare this space with real exchanges per se, but more regard it as an avenue for crowd-sourced investment.

Kate.

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