The SEC’s regulatory constraints on companies seeking to become publicly traded have become so onerous that they’re allegedly discouraging entrepreneurs and investors.
Micah Eldred, Spartan Securities CEO, gives his opinion in the Newsmax column below.
While the saga of the first-time entrepreneur funding his dreams with his life savings or credit card advances or by borrowing money from family and friends is still true, it’s not the only way small businesses can find funding.
Issuing stock, specifically, over-the-counter (OTC) securities (sometimes referred to as “penny stocks”) has long been a method of securing capital for smaller companies just getting started.
Because the process a company must go through to file an initial public offering (or “IPO”) is long and expensive, it is usually out of reach for smaller, start-up businesses.
Accordingly, these businesses often elect to trade as smaller offerings on an OTC market, often with a share value of $5 or less. It’s a much easier, much faster, much cheaper, and, ultimately, more accessible way for businesses and entrepreneurs to obtain the funding they need to grow; as well, it provides an opportunity for investors to get a profitable start in trading such securities without having to make a huge investment.
In many cases, companies that find success trading as penny stocks later up-list to larger markets when their value grows— something that has happened 77 times in the past year alone.
In fact, you would undoubtedly recognize a few of the companies that started this way; Berkshire Hathaway began as a publicly traded penny stock company when Warren Buffet “reverse merged” his insurance company with a failing textile company, and—more recently—Monster Beverage Corporation started out trading on the OTC markets in 2002, but is now valued at $29 billion.
These stories represent the exception, of course, not the rule, but what is common to every penny stock company, i.e., small companies with low trading volumes, is that they present potentially massive upside opportunities for comparatively modest investments.
Yet, despite the relative ease of trading on OTC markets and the potentially large rewards that presents, there’s been huge decline in OTC trading.