An Offer You Can't Refuse

Looking For Liquidity

One of the greatest challenges of raising capital has to do with liquidity. For many investors, the test of whether to invest hinges not just on the future success of the enterprise but also on the ability to get their money out of the deal. For this reason, some form of resale mechanism, no matter how primitive, can increase the likelihood of successfully raising money.

Exempt public offerings can accommodate this need by trading on Nasdaq's Bulletin Board stock market. You can enjoy this benefit without being required to provide the audited financial information that Nasdaq National Market or SmallCap Market denizens must. Another option is to have a stock broker keep a "book" of potential buyers and sellers and try to match them when orders materialize. This is more rudimentary than the Bulletin Board and, as a result, less helpful when trying to raise money.

Since most states have restrictions on the resale of unregistered securities, trading an exempt stock offering deal on the Bulletin Board isn't a slam dunk. But Colorado, Florida, New York and Washington, DC, allow for the resale of shares; as a result, some companies sell a small amount of shares to investors in those states, commence trading on the Bulletin Board, and use this rudimentary aftermarket mechanism as a selling tool to raise additional capital from investors in other, perhaps more restrictive, states.

Lumion used the absence of a restriction on the resale of unregistered securities in New York and Florida to get his company's shares offered on Nasdaq's Bulletin Board. "Once trading commences, we can purchase coverage in journals such as Standard & Poor's Corporation Records to gain clearance for investors in nearly 30 other states to buy shares that are already trading on the market," says Mocherniak. After companies publish their trading information in investment journals, restrictions on sales are lifted.

Mocherniak says he doesn't entertain any illusions about how active or liquid the market for Lumion common shares may be. But he feels the existence of a trading market, no matter how fundamental, will assist the company in raising capital later.

"We hope to conduct a larger public offering within two years," Mocherniak says. "Whatever following we can develop now will help."

Though Mocherniak appeared to move Lumion through the complexities of securities law exemptions with relative ease, he advises would-be followers in his footsteps to get good legal counsel. "The exemptions are there to help ease the task of raising capital, and they do work," he says. But with 51 regulating bodies--the federal government and 50 state governments--the task is still fraught with challenge. If you're in the viewing audience, he says, "You definitely don't want to try this at home."

Contact Sources

Lumion Corp., 4101 Weston Rd., Toronto, ON, M9L 1W6, CAN, (416) 745-6178, ext. 229

Douglas Lurio, c/o Lurio & Associates, (215) 665-9300,

Tom Stewart-Gordon,

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: An Offer You Can't Refuse.

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