Monday, September 2, 2013

The Difference between a Penny Stock or a Micro Cap Company Raising Money to Sustain versus Raising Capital for Growth.

Let's talk about micro cap companies or penny stock companies raising money for growth or for sustainability. For most passive investors or fans of the micro caps sector, raising money simply means raising money. But there is more implicated when a company seeks out capital. If you are investing in penny stocks then you should be an accredited investor. If you are not then you must check SEC regulations to make sure you are even within the legal realm to trade penny stocks. And to make clear once again, the penny stock or micro caps sector is the riskiest investment sector on Wall Street. The training of Micro cap stocks or penny stocks should be left to investment professionals.

Now let's talk about raising money in the micro cap sector. When a company raises money in the micro caps sector it is usually trying to achieve 2 things, either they are trying to grow their company or they are trying to sustain operations.

When a company is trying to grow their business model, they seek funding to expand operations. This would be the case in a business where a company sells apples and needs more land to plant more apple trees. This investment in the company tailored to buy more land will increase the revenue of the company, or at least it should with all other things being equal.

When a company is looking to seek capital and has no revenues, and the company states that the revenues from the investment will be as operating capital, then the investment is to keep the company operating above water, so to speak.

When investing in a company that is simply seeking operating capital, the investment is prone to be used up by management in efforts to acquire a revenue model. Thus unless a company accomplishes the goal of achieving a revenue model with the investment for operating capital, then the investment is for not. Please note, that an investment in a company with a revenue model does not necessarily mean that the investment will go up, it simply means that the management has the potential to invest the capital in a place where every turn is likely according to the company business plan.

To say the least, one should be weary of investing in penny stocks or micro cap companies where management is not known or not reachable. A good clue on whether a company is seeking investment for operating expenses are the SEC filings. If you have dabbled in penny stocks before, you know that some of these SEC filing slack highly material information and it is up to the investor to decipher whether the investment is good or bad. Usually no information is bad news, but let's get real, this is the micro cap sector.  Some companies choose not to make filings or disclosures because of operating capital expenses that it will incur upon filing such papers. If a company says it needs 10 million dollars to get its business off the ground, and you see that the company has been asking for 10 million dollars for the last 5 years, and has raised a total of 50 million dollars, then the company is probably not doing its job, if it is still asking for 10 million dollars to get off the ground.

Another sure way to tell if the company is using the investment as operating capital is to look at the balance sheet and income statement. From the financial statements you are looking to find out the company's burn rate, or what the company spends every quarter. Knowing what the company Spends, what the company makes, and what the company has in cash will determine whether or not the company needs more capital to operate.

Where a company places its money, or what purpose it needs the money for, is just as important as what they are in business to do. To lower your risk in micro cap land, look for smaller companies that already have a proven business model. If they are looking to raise money with this business model, then they are more than likely going to be successful again, as long as they were successful in the past. Again, nothing is guaranteed in the penny stock or micro cap arena. You are dealing with the riskiest stock investment you can make.

An investor should also consider if the company is allowed to issue more shares, if a stock dividend is likely to be issued, if a reverse stock split is in the plans, if stock options are issued with the new stock, or if a ratchet agreement is issued with any other stocks.

What do you need the money for? That is the question you want to ask the micro caps CEO, if you can get ahold of him.  Feel free to comment, ask questions, or place your thoughts in the comment section below.  Follow us on twitter by click on the icon within this post

The MicroCapCompany Team
Posted By: Nicholas Coriano 
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About the Author: Nicholas Coriano is a Business Consultant and Planning Guru.  He is a graduate of The University of Connecticut Business School and the John Marshall Law School in Chicago.  He has worked at Merrill Lynch, The New York Stock Exchange and as an Investor Relations Agent & Consultant to Micro Cap Companies and Penny Stocks.  He is the founder and author of The a blog focused on providing information and advice to Micro Cap Company Executives and Investors.  You can also find him blogging about Social Media, SEO, Web Development and Tech on

About MicroCapCompany.COM: MicroCapCompany.COM (The Blog) is a blog focused on providing articles, news and information on the micro cap sector and start-ups.  The Blog is a free service offered by Cervitude™ Investor Relations (a micro cap investor relations firm) and offers compensated research reports and business plan writing services for micro cap companies and penny stocks.  If there is a particular topic you would like to see covered on The Blog, email, If you would like to advertise on The Blog, click here

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