Several weeks ago, I received a telephone solicitation to invest in Renscape Technologies through a private placement.
At the request of Renscape Technologies, the Cagey Consumer reviewed this report to ensure that all relevant facts were considered. Before investing in Renscape Technologies, you are advised to consult with your financial advisor as well as with other persons who have an understanding of the internet-based technologies used by Renscape.
Private placements are similar to "initial public offerings" or IPOs, but restrict investments to those people with a certain level of assets and/or income. Using a private placement avoids the SEC registration process and also precludes trading of the security on a public securities market such as the New York Stock Exchange or the NASDAQ.
Whenever there's an attempt to raise funding for a new issue, there's likely to be a significant dilution of the cash being invested, whether done as a private placement or an IPO. For instance (but not to suggest that this is typical), the founders of a company might sell off just 10% of the company, holding on to 90% of the stock for themselves. Thus, assuming the company has no hard assets and ignoring the costs paid to administer the offering, for every $100 invested, the investor only gets $10 in assets. For this to be attractive to investors, they have to believe that there's a wildly fantastic business plan or some other sort of intellectual property that's going to be exploited.
The computer software field is probably pretty fertile ground for that kind of success, because if you can create a valuable piece of software, you can resell that software over and over with no virtually no additional production costs, at least in principle.
On the other hand, saying you're going to create this valuable software and actually doing it, and then getting somebody to pay for it, are two very different things. If someone else has developed a similar piece of software, it may be nearly impossible to maintain a reasonably high price for the software. Even if you're the first to come out with a particular kind of software, if it proves profitable, there will surely be copycats, even if you think you've got some kind of intellectual property protection.
For more information, please check the Renscape Alert page.