Jan 15 2007 by Jason

Raising Startup Money Through a Public Shell Company

Question: While searching for seed money I’ve been approached a few times with the idea of a reverse merger where my company is rolled into a publicly held shell company. To raise money the shell company would then do a roadshow to sell stock. SEC and SOX requirements aside (which is scary enough), this seems risky and a little in the grey area. Am I just too cautious?

Our Take: If you are too cautious, then we must be as well, because this doesn’t like a great idea. From time to time, we’ve had companies in our portfolio be approached by folks who want to roll them up into a shell, etc. It sounds like a ton of work and if you can’t get funded by a VC, it seems implausible that you can get funded by the public markets.

Bottom line, your instincts are the same as ours.  The folks we’ve met in this business seem a little too “salesy” for our tastes.