Dollars and Sense

A Modest Proposal

In January 1995, Duke made a pilgrimage to New York City to meet with several investment banking firms. Of the four meetings, one firm showed particular interest in Micro-Link's storage device. In fact, Duke recalls, this investment banking firm connected the StoreMaster to its own computer network-and promptly fell in love with the product.

But beauty is in the eye of the beholder. "While some of the bankers at this firm thought Micro-Link was ripe for an initial public offering [IPO]," recalls Morton, "there were others there who thought we should merge with one of the other high-tech companies they had taken public earlier." Unfortunately, when the primary advocate of the IPO left the firm, Micro-Link found itself considering a marriage proposal it had never wanted in the first place.

Not to worry: By late spring, another investment banking firm was "hot to trot." So, letting the first suitor wither on the vine-a tactic which, in hindsight, Morton says was a mistake-Micro-Link focused on the new proposal.

This investment banker issued a letter of intent to underwrite 1 million units priced between $5.50 and $6.50 per unit. The units consisted of one share of common stock and one common stock purchase warrant, which would allow the holder to buy an additional share at a predetermined price. In addition, the firm offered to "bridge the deal," meaning they would also underwrite a private placement of $700,000 that would be repaid once the IPO was done. Later on, this amount was increased to $1 million.

Morton recalls the bridge financing was to be completed during October and the IPO was to be done in the first week of December. Morton spent the summer preparing the various offering memorandums.

But when the underwriter got behind schedule, the deal got pushed into November. And when executives from the underwriter visited Micro-Link to discuss the bridge financing, Morton recalls, "They tore apart the offering memorandum so badly, it caused even more delays."

In December, with draft seven of the private placement memorandum in circulation, the underwriter asked Micro-Link management to make a presentation before its "commitment committee."

Uh-oh.

"We thought this would be a rubber-stamp affair," recalls Morton. But after the meeting, attitudes changed, phone calls to the underwriter went unreturned . . . and, in the end, the plug got pulled on the deal.

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This article was originally published in the July 1996 print edition of Entrepreneur with the headline: Dollars and Sense.

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