The Small Equity Initiative (SEI) today announced a Webcast
scheduled for Monday, May 10th to present a business case for
over-the-counter (OTC) listed companies to join together in a
co-operative for the purpose of containing costs associated with
regulatory compliance, improving access to conventional and
investment financial services and working together to improve the
overall OTC market environment for shareholders. A link to the
Monday Webcast will be published upon release at
www.smallequity.com and emailed to the SEI email database. The
Monday Webcast announcement follows a letter released by the Small
Equity Initiative yesterday titled "Too Small to Fail." The letter
has been re-released in its entirety within this press release
below and is also available at www.smallequity.com.
The Small Equity Initiative is a not-for-profit organization
established by the founders of NewMarket Technology, Inc.
(PINKSHEETS: NWMT) (OTCQB: NWMT) and China Crescent Enterprises,
Inc. (OTCBB: CCTR) to coordinate education, advocacy and activism
to improve the capital markets for both small business
entrepreneurs and investors. The Small Equity Initiative itself is
a small operation today with big objectives intended to improve
access to capital for small, start-up and early stage businesses
and improve the return on investment potential for the individuals
and institutions that invest in the small business sector.
"Dear Entrepreneurs and Over-The-Counter Investors:
"This letter is a call to action. The world's political leaders
are ignoring the largest contributor to the global gross domestic
product and small business entrepreneurs and investors have nowhere
to turn but to each other.
"Small businesses account for over 90% of all registered
enterprises around the world and approximately 70% of all
employment. Even in the United States, the leading economy in the
world, 50% of all jobs come from companies with less than 500
employees and that doesn't take in account approximately 20 million
people reporting as self-employed. While the world's political
leaders direct billions, if not trillions, of taxpayer dollars to
bail out companies "too large to fail," the small business
landscape is getting even more difficult.
"The U.S. Government has engaged in a very public battle to
ostensibly reform Wall Street through lawsuits and rhetoric. At the
same time, actual regulatory changes are
quietly underway that continue to erode the small business
investment market to the detriment of entrepreneurs and
over-the-counter (OTC) investors.
"No economist would argue that economic recovery has
historically been led by the small business sector and no economist
can argue that the small business sector, at this time, is not
getting the attention needed to fuel a real
economic recovery. Reported unemployment in the United States
remains at nearly 10% and actual unemployment is arguably higher,
yet world political leaders are somehow declaring economic recovery
victory. Until the small business sector can post meaningful
enterprise start-ups that substantially exceed business failures,
real economic recovery traction cannot be
truly established.
"Based on the apparent disregard for small business stimulus, at
this time, the small business sector cannot rely on any government
to fuel small business growth. The small business
sector has to rally its own resources for its own good and the good
of the global economy.
Over-The-Counter Markets and The Small Business
Economy
"Why do I bring up the OTC markets in my call to action when
only about 10,000 companies are listed on the U.S. OTC markets out
of millions of registered small businesses? Because I contend that
the U.S. OTC markets currently provide the best source of
standardized and consistent investment for small, early stage or
start-up businesses. Also, because I believe the U.S. OTC markets
provide the best opportunity for investors to benefit from the
return on investment potential of the world's largest economic
sector. Yes, I think the U.S. OTC markets have plenty of room for
improvement -- and that's an understatement. Nevertheless, retail
investors purchasing stock in OTC listed companies can realize
substantial returns if they realize that the strategic approach to
achieving potential returns is significantly different than
achieving a return on an investment in a company listed on a
national exchange such as the NYSE Euronext.
Over-The-Counter Investing
"If you found this letter's headline of enough interest to make
time to read this letter, you are probably already aware of the
facts regarding the life expectancy of small businesses. Most small
businesses do not sustain operations beyond three years. Keep in
mind however that the small business sector accounts for the
majority of global employment and the majority of the global gross
domestic product. What does that tell you? It tells you that
entrepreneurs don't just start one business in their lifetime, but
multiple businesses. As one small business reaches the end of its
lifecycle, the founding entrepreneur starts a new business and
probably hires many of the same employees working at his last
business. If you want to realize a return on a small business
investment, your investment horizon should likely be less than the
three year statistical life expectancy of most small businesses.
While most small businesses will not sustain beyond three years,
many will at least realize some profitable milestones achievements
within their three-year lifecycle that have the potential to
deliver a return to the investors that funded the start-up or one
of the initiatives that led to a milestone achievement following
the start-up.
"Small business investing is significantly different than big
business investing, but the industry experts, analysts, investment
and commercial bankers put a big business assessment template on
the small business sector. That big business template distorts the
fact that the small business sector is the biggest contributor to
employment and gross domestic product and that somewhere within
that employment and gross domestic product contribution is probably
a good, if not great, return on investment opportunity.
The Milestone Investment Strategy
"A small business that is publicly listed expands and improves
the opportunity to realize the return on investment potential from
a small business. Those milestone achievements that most small
businesses will realize within what might only be a three-year
lifecycle can create an increase in share price and trading volume
that in turn can provide a return on investment opportunity to
those retail investors that accumulated a small position in
anticipation of a milestone event. Instead of buying and holding a
long-term position as one might with a big company listed on a
national exchange, investments in smaller companies listed within
the OTC markets must be much more actively managed.
"The top 100 most actively traded stocks on the Over-The-Counter
Bulletin Board (OTCBB) currently trade at an approximate average
share price of $0.02. The total average daily trading volume of the
top 100 most actively traded OTCBB stocks is approximately $30
million a day. The top 100 most actively traded stocks on the Pink
OTC Markets trade approximately $50 million a day in total volume
at an average share price of $0.006. If a milestone event results
in a $0.01 price increase or even half that amount, a retail
investor that accumulated stock leading up to the milestone stands
to potentially realize a very good return on investment. The
average total annual trading volume for the approximately 10,000
U.S. OTC listed securities is over $100 billion. The U.S. OTC
market can be a dependable platform for small businesses to form
capital as well as reliable venue for retail investors to realize
sound returns from investments in small businesses.
Capital Formation For the OTC Listed Small,
Startup or Early Stage Business
"Writing a $100,000 to $1,000,000 check to a small business to
fund start-up or milestone expenses can often be more of a gamble
than the typical institutional investor is willing to make. Few
institutional investors are willing to take such a gamble on a
direct investment into a small business with a statistical life
expectancy of only three years. However, when that small business
is publicly-listed and the $100,000 to $1,000,000 investment return
can be monetized with publicly-traded stock, entrepreneurs can find
many institutional investors now willing to make such an
investment.
"On average, U.S. OTC listed companies that publicly reported
financial results had approximately $17 million in annual trading
volume in 2009. About 5,000 of the approximate 10,000 OTC listed
companies publically reported financial results. Companies that did
not publically report financial results had approximately $2
million in annual trading volume. If an institutional investor
would conservatively be willing to invest an amount equal to
approximately 10% of a company's annual trading volume, then a
non-reporting OTC listed company could reasonably raise $200,000 a
year to fund their business plan and a reporting company could
reasonably raise $1.7 million a year to fund their business plan.
The $200,000 to $1.7 million range is a conservative estimate and
based only on average OTC performance. Some OTC companies trade
substantially higher volumes and could potentially garner a higher
investment level from an investment structure that monetizes the
return to the institutional investor through the issue of
stock.
OTC Education to Improve Small Business Capital
Formation and Returns
"The OTC markets currently provide a good source of mutually
beneficial opportunity for entrepreneurs to raise early stage
capital and for investors to realize reasonably risk mitigated yet
attractive returns -- But, the OTC market opportunity could still
be better.
"Regulators and institutional investors approach the OTC markets
with the same tool box used for national exchanges. The situation
amounts to a 'square peg in a round hole' issue. Nevertheless, I
maintain that even before any improvements are made, the U.S. OTC
markets are currently the best source of standardized and
consistent early stage capital for small, start-up and early stage
enterprises available anywhere in the world today. I believe a
little education on the OTC markets could go a very, very long way
in making up for a variety of 'square peg in round hole' related
issues. Few entrepreneurs understand the dynamics of raising
capital on the OTC markets. Likewise, many retail investors
approach the OTC markets with a Warren Buffet, national
exchange-oriented return on investment expectation. Well, Warren
Buffet does not invest in the OTC markets and his investment advice
does not apply here. Yes, we need to advocate for small business
regulatory and investment banking reform, but I believe the biggest
and fastest small business capital market improvements can be
realized from an investment of time and talent in OTC market
education.
"My family launched a technology company in 1997. In 2002, in an
effort to overcome the fallout of the dot-com market collapse, we
listed on the OTCBB in order to get access to the U.S. OTC capital
market. Over the last eight years we have been to the MBA School of
Hard Knocks. Even with all the lumps we have taken in the OTC
market, we still have come to believe in the promise of the OTC
market to grow into a more widely recognized, respected and
accepted small business capital market.
Call to Action
"Toward that end, we formed the Small Equity Initiative (SEI) as
a not-for-profit organization founded on our own OTC market
experience with a mission of providing education, advocacy and
activism. We will lead with education by sharing our own
entrepreneurial fundraising experiences in letters like this one,
blogs, Webcasts and e-mails. In short, we're going first. We will
show ours, and now we want you to show yours.
- Share your experiences with us at info@smallequity.com so they
can be broadcast from the SEI website
- Forward this letter or a link on to another entrepreneur or
small business investor
- Sign up to receive updates at www.smallequity.com so we can
make sure you receive the next round of lessons learned from other
small business entrepreneurs and investors.
"When we are ready to advocate for reform, with your e-mail
address in the SEI database we can coordinate e-mail campaigns to
regulators, lawmakers and investment bankers. We don't have to wait
for the next election to put the democratic process to work. We can
vote our conscience in regard to small business economic reform
today and every day, with communications to a regulator, lawmaker
or investment banker expressing our position or better yet, with a
small business investment demonstrating our position.
"Within the United States, approximately 50 million jobs come
from organizations with less than 500 employees and another 20
million people report as self-employed. Full employment in the
United States is approximately 120 million. Statistically, most of
us reading this letter are likely receiving a paycheck from a small
business. We have the clout to empower an improved small business
economy. Recognizing that the small business sector accounts for
the majority of the world economy, one might even suggest we have
the responsibility to empower and improve the global small business
economy. The world's political leaders have so far largely ignored
the small business sector since the 2008 global financial crisis.
We have nowhere to turn but to each other as small business
entrepreneurs and investors.
"Stay tuned for upcoming communications from SEI on:
- OTC Regulatory Hurdles to Small Business Finance and
Performance
- It's Not a Recession, It's an Economic Revolution
- Entrepreneurial Finance on the OTC
- Entrepreneur Co-Ops and Credit Unions
- Small Business Public Markets Around The World
"Take action today. Forward this letter and respond to this
letter to info@smallequity.com with your own experiences."
Best Regards,
Philip Verges Founder Small Equity Initiative
About The Small Equity Initiative www.smallequity.com Small
Equity Initiative is a not-for-profit organization dedicated to
improving the opportunity for self-directed retail investors to
profit from over-the-counter investments and for entrepreneurs to
gain better access to capital for their business plans. The Small
Equity Initiative (SEI) plans to build a community for small
business investors and entrepreneurs aimed at improving the
collective understanding of how the over-the-counter market really
works today and how it can be improved in the future. SEI is based
in the U.S. but serves the global small business community.
Contact: The Small Equity Initiative 214-722-3041
info@smallequity.com
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