In Canada, there is a healthy tradition of early stage mining ventures masquerading as public companies. Most of these businesses start as private deals amongst friends who pool their resources to see a company through the expensive listing process. The average check size is only a few thousand dollars. If you’re wrong, it doesn’t cost too much and the upside can be huge if right. During the latter half of the past bull market (2003-2008), I frequently found myself being persuaded into investing in these startups. The honest truth is that my friends tend to be smarter than the average entrepreneurs. I also have a soft spot for hard working ambitious guys in need of capital to get an idea off the ground. Despite my frequent reservations about these investments, I made quite a few of them.
When something goes horribly wrong at a public company, you sell the shares and move on. When you own non-marketable seed shares, there’s nothing to do but be patient. Some deals take a while to come public—some never do. During the two year financial crisis, speculative capital dried up and quite a few of these companies simply disappeared. The quarterly updates started coming late, then not at all. No one called to see if I wanted a few drinks—heck, you could call for weeks at a time before anyone would even pick up the phone. Then, that day comes where the operator tells you that the number has been disconnected. There is no bankruptcy process. The money simply runs out and the people behind the deals go onto other ventures. The companies die a slow death, but they’re never quite gone.
Frequent readers of this site will know that I loathe Ben Bernanke. I find his plan to destroy the middle class in order to bail out his banking friends despicable. However, give him credit for one thing; on his watch, nothing will die. If you print enough money, damn near any failed business is once again viable.
Imagine my surprise when I got a call last week from one of the more dubious seed companies I had invested in (we all make mistakes). After two years of radio silence, they were going to resurrect this company and continue with the plan. After raising half a million in 2007 and spending it on entertainment and a bit of world travel; they were once again searching for an exciting deal. They were looking to raise more money and even more amazingly, they had investors lined up for a repeat. Did I want to buy more shares and give it another go? Silly stock promoters…. Sold to you!
Then they did the craziest thing, the insiders offered to buy my shares from me. Of course I didn’t get all my money back, but in my mind, this was a certifiable zero. Half is a lot better than nothing. The undead are rising and they’re hungry for capital!! I’d tell you to guard your wallets, but there’s no need. Ben Bernanke will feed them all. Nothing creates fake jobs like new business formation—even if the businesses only intend to explore for gold.
Money printing has many crazy side effects. The Undead Are Rising!! As long as they keep printing money, they’re un-killable—no matter how determined the founders are to spend them bankrupt. Like a bad zombie movie, they just keep stumbling onwards. Bernanke is now the zombie master.