BSW: Right on the Mark!
BSW wrote: "The issue of dilution is a red herring raised by purists who don't seem to understand that there are acceptable levels of dilution for growth companies at different stages of their life cycle. The fact of the matter is that every technology company that has exceeded the $1B revenue milestone has had to dilute its stock to raise the funds to finance its growth."
I agree at least 110%!
Gee anyone take a look at the stock float of BIG companies? How did they get that way? Well they didn't start that way--they floated more stock to finance growth--and that is true not just of tech companies.
And that growth made up for dilution in succesful companies.
High tech companies particularly an R&D based company like IDCC NEEDS to stay on the cutting edge of current AND FUTURE technologies or at some point we'll be resting on our laurels and collecting revenues from past work with no prospect for future growth and only dwindling revenues in our future if technological innovations makes our products obsolete.
And I'll say it again--what we want and what we demand from this little David vs Goliath(s) of this industry company of ours is to get the best and stay on the cutting edge. And in order to do that we need to be able to compete for the best talent out there. And in the current competitive environment, options is one of the cheapest ways to do it. The idea that we should pay cash compensation instead, ignores both the fundamentals of good money management and the basic concept of net present value, and ignores the fundamentals of good management and the sound rationale behind ISO plans and encouragement of employee ownership--after all the more a company is employee owned, the more confidence one should have in it IMHO (in most cases). An engineer who comes to IDCC and stays and takes our options over someone else's is giving a vote of confidence to our company and our technology, just like investors watch insider buying as a signal of confidence.
These options are almost certainly meaningless or close to meaningless if the company doesn't grow significantly in terms of revenues and profits.
And these options will produce income if exercised--income that will be plowed back into technology development and ultimately produce growing revenues and profits.
YES BSW growth needs to be financed. IMHO options is a better way than spending cash so we won't have to borrow or dilute by secondary offerings (I'd rather have employees owning than outsiders), private placements or other forms of financing.
And all of us want to see growth, and future revenue streams.
If a dilutive effect drives the price down, the only way the options will be exercised is if the ultimate effect is to produce more for the bottom line which will drive the stock price back up and make up for any dilutive effect.
I don't want 80% of a shrinking or static pizza pie so I can say I control 80%. I'm willing to take less of a growing pie so I can say that my piece is filling--even if much of the pie is not mine.
YES BSW you're right--the dilution argument is a red herring, and a smelly one at that!
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