This is the second in business case studies series. I have some more to add, but being a victim of time is hard.
THE FAMILY

my part of the house :-)

what a bed... and alpha male sleeps alone in it...
Again, no names will be included. I met a charming couple (Australian »Crocodile Dundee« husband and very classy »southern charm« wife) as clients when I was working at the Canoe rental shop. (By the way, the pay for the last two weeks is still in a phase of wishful thinking.) We instantly felt the connection and mutual interest, so they invited me for a dinner at their place in Arizona.
They have met while getting divorced from their first marriages, which helps them to keep it real and respect what they have. She is staying at home, he does the corporate battle. There is no inferiority in that… she is smart enough to be part of the business, but frankly they are both better off that way – at some point it doesn’t matter if they had more income, but it does matter to give your child full attention of a loving and witty mother.
THE BUSINESS
It is a mining business. Arizona is rich with copper, and they are implementing a special technique to get it at lower costs than usual. The company is in its beginnings. He is it’s CEO with 25 years of experience in mining industry, and a PhD in geology. Some drilling has been done, they have basic information about the amount of copper and probable income when extractions begin. Company now has markat capitalization from 20 to 25 million USD, management owns about 15% of it. The amount of cash they have is around 5 million.

middle of nowhere... oh, the cactus are protected... and more than 100 years old!
For the next stage they need around 30 millions. This is mining. Research means you drill very deep holes, extract rocks, and they study them. Drilling is expensive. Geologists that contemplate over the rocks are not for free either (he has a few of them, they cost 150.000 USD per year plus lots of shares, respectively).
To be in full capability for extracting copper they need from 200 to 300 millions. He is not worried at all about getting that amount of money – the only question is at what price (how much money will they get per share). As the whole market is going down and the commodities bubble is fading out, this is not the best time for raising money. Money that comes in first, risks the most, but also gets much better return.
I, as a micro investor, can of course buy shares on the market without raising it’s price. If you have 10 millions of venture capital you can only get the shares from the company. With such quantity you would bubble yourself up on the market.
INVESTOR RELATIONS
As I was visiting, he had a big investor relations event going on, and invited me in. Seventeen men and one (very attractive) woman came. The company has a deal with some other company specialised in IR (investor relations) that helps them with all that. One guy there does an amazing job with it – I am not fully sure by which side he is paid – and he organized the whole event. I want his job :-)
9am – breakfast: CEO gives an overview of the company and what we are going to do today. Nice presentation, some questions asked…
11 am – driving to a warehouse where research is done. Lots of rocks and some geologists being all smart about it. Presentation about the geological structure and pros and cons of he technical part of work is done more thoroughly.
1pm (approx.) – lunch: presentation about permitting. It is very important that the new way is not environmentally invasive, no dust, and the location is in the middle of nowhere – so no issues with any neighbor communities.
2.30 pm (approx.): Quick flight to the site: we took two charter planes to go directly to the site. By far most expensive part of event was done solely to leave an emotional impact: there is nothing there to see. A few little hydrant-like metal cylinders rising from the dirt, and a highway half a mile away. We were there for an hour at max, and that is the reason to take the plane: if you drive somebody for 2.5 hours there, show him emptiness, and then drive 2.5 hours back… he might not like it too much. But paying for flight just to assure one that you really are mining in the middle of nowhere… that leaves a good impact.
6pm – dinner: at the dinner it was quite obvious who is bringing serious money and who is just taking a short look at the whole idea. It was relaxed socializing, the CEO and some other professionals were having an easy-going discussion, leaving the business aside. The company is presented, the management knows what they are doing, and no pushing and begging is needed. Very good soft selling. You don’t push people with 30 millions. You lure them, and in this case the product speaks for itself and gives good grounds for negotiating the price of shares.
9pm – CEO and me take off to the train station as I am leaving for Texas. IR specialist stays with the group and wraps up a very good day.
——
It was interesting to see that each investor was most worried about the woes in his field:
geologists said »Oh, the permitting will go through, but the technique might prove much less efficient.« But geologist has no clue about the permitting at all :-).
Lawyer said »Oh, the mining will bring in the money, but what if the authorities don’t let it through because of environmental impacts and all that crap?« But lawyer has no clue about the mining process.
Young financial analysts said »Oh, this is going to be great, but what if stock market crashes and there is no money to fund it further to later stages?« But financial analysts don’t know shit about anything anyway!
BUSINESS RELATIONS
People introduce and exchange business cards (that I don’t have). Very interesting bunch of geologists, investment analysts, brokers, and some old guys… you cannot stuck oldies in any branch, they’ve seen it all. Age goes from 30 to 70. And as I saw the CEO and the IR guy do the job, it felt like something I would be good at, too. It is a high-end sales: you are not trying to trick a dumb consumer… you are representing a very good idea to people with decades of investing experiences. It is all about risk/reward. Every one of them needs to be persuaded, that at the risks that come with a mining start-up, this company is offering better return than average. I, as a very intelligent all-round evaluator of business and people was persuaded, hehe. I cannot think of a better education for investor than Philosophy with strong emphasis on Gnoseology :-).
One lesson learned: good management in a start-up is more important than a good project. If management is good, it will get you out of a bad project. If it’s bad, it can screw up a good project.
So when the other investors asked me who do I work for… »oh, I’m a freelancer. I’m here on my own.« Then they smelled money on me and the discussion would take a wild turn… maybe I’m a son of some Slavic oligarch and could invest millions in something… So I smilingly corrected myself: » well, we could also say a freeloader. I’m CEO’s friend and he is showing me his business today, hehe.«
There is no prejudice when money is involved. No matter the age, origin, colour, or accent. As long as you don’t introduce yourself as a society changing hippie, worried about CO2 emissions… after all, this is mining business. I might be good at IR, and even enjoy it as long as representing companies I would believe worthy of investing in.