What is a start up company, what increases risk. IMO penny players need to not only have knowledge of the market they trade. But the underlying structure of the companies on that market.
I'd be willing to bet most penny players don't know what they see on the OTC level 2 isn't their orders, but market makers orders. I'd be willing to bet most penny players don't know the structure and stages a start up companies on their chosen market.
Knowledge is what this board is about.
I don't like your wording response to BigBake1. Get a life! Really isn't called for, in a difference of opinion post here.
Enough we don't argue here. I already removed one of your posts for things like that. I Want you here to learn. Not re-enforce ego's with impolite comments. Thanks for stopping this.
Life "like the market" is full of GRAY. Which is best BLACK or WHITE will not help readers become successful traders.
On to a "on topic subject."
Trading start up company stocks.
First one needs to know the different stages of a start up company.
1. A business plan
2. Funding to execute that plan
3. Execution of the plan.
4. Product development
5. Product marketing
The each of the last 3 stages require capital inflow just like the first. So most often you will see 3 stages of raising capital. After the start up capital has been raised. (3 rounds of funding) a seed round, series A & series B round.
Stage 3. needs business staff, offices, supplies and the like.
Stage 4. needs production staff, materials, tools, work space and the like.
Stage 5. needs Marketing staff, advertising materials, communications, and the like.
Start up companies only have one thing of value to raise the capital needed to step through these stages. Stock. The stock is used for collateral, out right purchase, services payment and employee bonuses and the like.
Now we will get into the Venture Capital Market.
There are several levels of firms which loan money at different stages of a start up company. Because as a business progresses they acquire more and more assets on the balance sheet. Also each funding stage acquires more Equity and Debit.
Funding rounds
Stage 2. normally involves angel investors (private individuals)
Stage 3. involves professional companies which manage other people money.
Stage 4. usually as successful entrepreneurs involved
Stage 5. Could be any of the above.
As a start up business progresses through the growth stages it involves a different level of investment risk. Thus different types of firms. Each firm has expertise to evaluate risk based on how strong the company has managed money before. And this expertise involves assistance the companies management, along with capital.
I should also mention there are two types of start up companies. Private and public. We're moving in public only. From this point.
Most of the OTC company funding involves the stage 3. type of venture capital firm. Un like and angel investor who has lots of money and likes being on the ground floor of new ideas. Or the stage 4. entrepreneurs groups which assists management with both direction and capital as long term investors. The stage 2. firms are around to create gains for the people's money they manage.
Stage 2. VC's are the most profit/loss orientated type of Venture Capital firm. Armed with basically the same department staffs as a big board hedge fund.
So public company managements have a completely different mindset to motivate funding then a private company. Private start ups sell growth, potential market size, previous money management successes. Public management needs to sell stock value, much more then company value. For the capital investment their after. Because OTC VC's main goal is gain, not success.
This is the main, maybe the only reason penny players are involved in a much higher risk of becoming involved with a scam company. The people investment funding aren't investment minded. They are profit mined.
Another thing to keep in your mind is most CEO's on the OTC are first time start up company managers. They have the idea, they invest personal cash in the first stages. They love to micro manage.
While a private start up company CEO will hire legal, financial, marketing staff in their first original business plan executional steps.
Public company types, do it all themselves.
There is a all or nothing, my way is the best way. I need no advice only cash thought process, to how their minds work. This mindset, INCREASES your risk level when you agree and believe, rather then evaluate and research successful business financials.
It's my feeling there are so many scams on the OTC because of this micro management CEO style seen in the start up company public market. When it's your baby, even honest people may waver for the cash they need to save their kid. And because penny players can't and don't really evaluate and research true business strength/weakness. Bad guys flock there.
