So, I woke up this morning 3 hours early with a headache comparable to a hangover despite the fact that I don't drink and decided to poke around the CapEx forums. Since coming off my "mute" status over there and actually being allowed to post again, I don't troll there much anymore since my posts would probably get deleted eventually any way....but anywho....
I came across the most interesting thread I have seen on the forums in a long time. The thread is titled "IPO Funds. Where do they go." Arnaud Villota's argument was that IPO funds were not escrowed and wondered why because Ima Janitor of MECH had been told he would not get his IPO funds up front at completion. Arbitrage Wise's response was basically, the funds are used in the bank to make money since interest was being paid on those funds and that he would rethink paying interest at all on those funds.
A few things are interesting about this if you apply simple logic to this situation. Arnaud has a valid argument. Escrowing IPO funds in the future to prohibit JTF's operations from impeding on investor funds makes perfect sense. Arbitrage rethinking paying interest on IPO funds is also very valid especially if he decides to use an escrow service. So here we have two very valid points from both sides of the house but I have a few questions. And here come my bulleted points that I so love to use in my blogs.
1. SL CapEx charges a fee for the IPO. Shouldn't most of the fee offset at least some of the interest? In this realm it is like the CEO of the IPOing company giving an incentive for purchasing that is offset by the fee paid to JTF. Possibly to keep the interest going and still make their money, JTF might consider a higher fee for IPOs or give the CEO the option to pay interest during the IPO or not.
2. SL CapEx and JTF are supposed to be two separate entities operating on the same platform. Why would JTF be using IPO funds from SL CapEx in JTF operations outside of the exchange? Maybe I missed something on this one but I would think that CapEx funds would be used for CapEx operations. This one I am cloudy on since I am lacking some key elements. Possibly this was done since interest payments come from JTF......
3. The current amount in the MECH IPO is roughly $2.5 million. With JTF having $80 million plus on the books in deposits, is there a liquidity issue somewhere that would stifle JTF to pay out $2.5 million at once? A familiar smell passed my nose when I pondered this one at 6am and it smelled of Ginko but the smell was quite faint so it could have just been the euphoria of sleep deprivation and migraines.
4. The JTIC IPO closes quickly....nice....giving JTF another $2 million in funds and 28 million "shares" to sell back to the public at convenience. Isn't this what we saw from BNT? The personal piggy bank? And what are these funds being invested in? The prospectus is about as vague as an androgynous man...woman...yeah...you know what I mean.
Here's an interesting quote: "We will raise funds through the issuance of Investment Certificates, and move those funds to our trading accounts. Once the certificates mature, we will convert the USD back to L$ to buy back the shares at face value."
That statement alone leaves to many questions to be asked. Trading accounts? Convert to USD? Face value? What I gather from this is that these "certificates" will be converted to USD to be traded in an account outside of SL and then brought back at maturity for their value at that time. WOW! What an awesome product this is, but nothing in the prospectus states invested in what and with whom.....
Very interesting stuff indeed....*grabs a bucket of popcorn and settles in*
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IPO's : If interest is paid on funds invested in IPO's, JTF (or SL Capex, more on that later) should be allowed to use the funds to work for them as long as the IPO doesn't end.
Once the IPO ends, funds should be transferred to the company/CEO within 48 hours. Sounds like a reasonable term to me to move funds back out of short term investments and towards the CEO that IPO'd.
If JTF or SL Capex pays no interest, they shouldn't be allowed to use the funds, but instead park or escrow those, preferably over a number of services that are unrelated. We've seen too many big names fail lately that laying your eggs in one basket just seems foolish. The profits made from the money while in IPO should be going... well, that's a good question? To the investors I suppose, as an immediate dividend after IPO. It would be called a dividend but really be interest on funds held up in IPO.
The JTF or SL Capex situation seems the same as WSE and OurBank. They're tied and I guess that SL Capex moves funds to JTF, and JTF pays interest to SL Capex. That is what would make sense, though I don't know if it's correct.
"We will raise funds through the issuance of Investment Certificates, and move those funds to our trading accounts. Once the certificates mature, we will convert the USD back to L$ to buy back the shares at face value"
If that is the case, they're dealing with double conversion losses (from L$ to USD and USD back to L$) which should make their investments in RL very solid and very low risk as they need to cover :
- the initial capital for buy back
- the monthly interest/dividend payment
- the conversion fees
On the other hand, having a long term cash reserve of L$2,000,000 (with L$28,000,000 more to print as they like) can generate some nice income and maybe they're hoping the price drops so they can buy them back for cheap before the end date?
(That's just an assumption or possibility, not a statement that anything like this is being attempted)
Ok...I do agree on the IPO thing but the JTIC thing...I am still hairy on...
We need a L&L exchange ...
:)
Luv Lykin
Actually, that is in the works but NOT for Second Life. L&L Corporation is looking to launch in other metaverses soon with Second Life being the major stackholder so that profit will go to shareholders of L&L Divisions in SL. Good times when that finally happens.
I'm going to reply in the bulleted format, only, with asterisks!
*I have given that some thought, and... I can't come up with the math to see how likely they are to take a loss if they just use the - what was it, 5% fee for listing? To pay out the interest. All I know is 5% is the max they can pay out per IPO, and .1% a day of the current sold shares is how much they pay out. All in all, it looks like a gamble for them from my perspective.
*Uhm... Convenience of ownership, I guess. If you're going to pay out interest, you might as well try to make money doing it.
*That would really suck, wouldn't it? Heh, maybe these virtual exchanges are actually a voodoo curse made to kill any big names.
*Yep. Nothing totally new there, but at least this is a liiiittle less like theft, as the shares have a set 'value', you know?
I imagine the 'face value' simply means 1 linden per share, despite what the investors are trading at, at the time... It makes the most sense.
*What I'm actually curious about, is if Arb is going to post 4,000 lindens per month (.2% of 2 mil) or 60,000 lindens per month. That's more a curiosity on weather or not the dividend system has the ability to 'ignore treasury shares' and so... A little off topic.
BTW. It is already more than 2M share. Take a look at the research page ....
Well I guess this is more interesting then. And my popcorn is getting low. I am really just waiting for the end of the MECH IPO at this point and see what happens. So much up in the air these days. I might scale back my personal investing for a bit.
Me is becoming skurred.
Hey Lindsay, I just ran across this post! I am embarrased. I should keep up with this stuff!.
Anyway, as you know, after Bo or Arb posted their response to my post about the Mech deal, I had suggested that maybe they should quit paying interest on IPO money so long as ImA could get full proceeds on his IPO when it finally went public.
The bitch of this was, they did!!!
I lost a weeks or more worth of interest, but son of gun, ImA got his full amount! He went for less than the 5Million but he still got everyhting from Arb the day he went public.
So, what can I say! I guess I got what I asked for. Why doesn't that work when I ask for more money, not less!!! lol!
Anyway the important thing is that Mech is doing well, I really believe that they have a solid product and from what I have seen since they have gotten out of IPO is looking pretty darn good (especially in the new Windlight Viewer! It is a whole new experience!). I think there will be a happy ending to all of this, but I think that it did raise a lot of other important issues which you have brought up. Thank you for that and sorry for such a late reply to your post! :)
Arnaud Villota (sorry I forgot my account info. Old Age you know!)
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