Venture Capitalists - The Last Holdouts on IPO Alternatives

I began my career at a law firm (now known as Fulbright & Jaworski in New York) that represented a number of leading venture capital firms. I worked on dozens of venture deals back in the go-go 1980s that led in many cases to lucrative initial public offerings that brought millions to the vc's and the institutional investors in their funds. So I believe I have a sense of the vc mindset when it comes to "exit strategies" (every venture investor puts money into a private company with a long-term plan to be able to cash out at some point).

In the past these exits were about evenly split between an acquisition of one of their portfolio companies and an IPO. More recently, however, the exits are more like 90% acquisition and 10% IPO, and that 10% number continues to decline. Most vc's will admit that they are more likely to obtain a higher ultimate return on their investment following an IPO than an acquisition. So why have the number of venture-backed company exits structured as IPOs fallen so much?

On June 29, the New York Times reported, "So far this has been a challenging year for companies hoping to go public. But it has been even rougher on venture capitalists who were hoping to get a big payday from such an offering...In the second quarter of this year not a single company backed by venture capitalists has gone public. It is the first time that has happened since 1978, according to a venture capital industry group."

Yet despite these difficulties, the vc and private equity community (other than in the biotech space) have steered clear of taking their portfolio companies public through reverse mergers, self-filings or other IPO alternatives. So why are the number of IPOs down so much? Why do these investors avoid IPO alternatives? How can we fix that? Let's explore.

Why is it tougher to complete IPOs?

The vc's have clearly hit a new low if this is the last time since your humble blogger was in high school where a quarter went by without a venture-backed IPO. The main reasons that IPOs for venture-backed companies are so much harder to complete are (1) smaller IPOs have disappeared and (2) the IPO market has been extremely rocky, even for larger companies, since the market crash of 2000. Let's take each one of these separately.

Death of Smaller IPOs. Why have smaller IPOs disappeared? As I described in my book, in the 1980s and 1990s, many small brokerage houses took smaller companies public through IPOs and would raise $10-50 million on average- some even less. Many of these companies were venture-backed. Many started trading on Nasdaq, the exchange of choice for most vc's. Some fared well and others didn't.

It should be noted that even during the IPO heyday, reverse mergers also remained strong. Why? Because as fast as one could take an Internet company public in 1997, some wanted to be public even faster (and cheaper). The reverse merger still offered (and continues to offer today) a faster, simpler, cheaper and less dilutive alternative to an IPO.

In any event, following the crash of the Internet stocks and the market as a whole around April 2000, the IPO market initially disappeared entirely. Then entered our former (now disgraced) New York Governor Elliot Spitzer. Spitzer decided to go after the small brokerage firms, a number of which were engaged in questionable activities such as "pump and dump" and issuing rosy research reports without clearly disclosing conflicts of interest.

Once a number of high profile criminal cases were brought, and major investigations about issuing of research reports, well, it all just stopped. Soon thereafter these small brokerage firms, or the ones that survived the market shakeout in the first place, discovered that life is easier raising money for companies through PIPE transactions that do not involve regulatory scrutiny prior to an investment, and hence one of the reasons for the explosion in PIPEs, now an $80 billion a year industry.

So that's why smaller IPOs are virtually nonexistent. In 2007 only six IPOs involved companies raising $25 million or less. The average market capitalization of a company completing an IPO in 2007 was $330 million.

Difficult IPO Market. So why has the IPO market, even for larger companies, been rocky since 2000? It is hard to predict the opening and closing of the so-called "IPO window." Sometimes IPOs cease even when the overall stock markets are fine. Sometimes a difficult market for technology stocks alone will cause the IPO market to take a hit.

But since 2000 the IPO market simply has never gotten close to back where it was in the heydays of the 1990s. I'm sure others can put up tons of statistics on that, so no need to do so here. Why so difficult?

First, the overall market has been difficult and that never helps. Second, enter again Spitzer. In the mid-2000s as New York Attorney General, he went after virtually every underwriter of large IPOs from Merrill Lynch on down. He claimed that in the IPOs of the 1990s even they engaged in illegal actions including improperly setting aside shares of IPO stocks for favored investment banking customers, and again that whole research thing. These firms ponied up literally billions of dollars to settle with Spitzer, who this time had the SEC and the US Justice Department working with him.

So bottom line, the regulators took all the fun out of the game. Yes there are still IPOs and 2007 was a better year (though 2008 has been a horrible year again). But again the underwriters have determined that it is not worth playing the game unless the company is of a very substantial size.



Why have vc's shunned reverse mergers and IPO alternatives?

I have spoken at several conferences for vc's and private equity investors, including one specifically titled "alternative exit strategies." At each one I explain the benefits of reverse mergers and suggest that while not for every deal it can be an efficient way to help take a company to the next level. I try to employ what I learned at a sales seminar I took when I used to own a radio station, namely, that selling is the process of overcoming objections. Here are the main objections vc's raise to reverse mergers and my response to them:

Objection #1: Reverse mergers are shady. If there is one thing I can be pleased about, it is that it appears this objection has been virtually eliminated. It is true that 5-7 years ago, many vc's, often advised by then ill-informed major law firms, believed that only bad guys were involved in reverse mergers. Virtually all the vc's (and their lawyers) now understand that there are a number of legitimate players. They look, for example, at SPACs and realize that some major big time success stories are seeing the legitimacy of these alternatives.

Objection #2: Better to wait for an IPO. The vc's argue that, even if it takes an extra year or two, the IPO will result in a better ultimate pay-day for them. The best companies, they say, will ultimately qualify. The "dogs" (badly performing portfolio companies) are not worth trying to salvage. The medium success stories, doing OK but behind expectations, they say, are not worth taking public because there are problems that need to be dealt with before. My response: (a) that hoped-for IPO may never come based on the discussions above, even for some of the best ones, leaving them with only an acquisition exit which likely will be less lucrative, (b) there are quite a number of reverse merger success stories that belie the theory that an IPO provides a better pay-day and (c) medium success stories can benefit from being public if they have a continuing need for capital and are having trouble raising it, thus making an IPO alternative attractive. It should be noted that this has been the most stubborn of the objections, despite my entreaties to the contrary.

Objection #3: I will never be able to liquidate my investment. Many vc's express the concern that companies completing reverse mergers never build trading in their stock. They say, "I don't want to have to become an investor in a public company, that's not what I know how to do."

My responses: (a) Although the stock doesn't generally "pop" as it does after an IPO, as I have written here and in the book many times, market support builds over time after a reverse merger - assuming the company deserves the support and engages qualified professionals to assist in educating Wall Street. They should talk to the many CEOs whose company stock has built very strong trading and moved up to higher exchanges - or talk to my client Rick Rappaport about his WRASP structure to take a private company public through a merger with a virgin shell followed by a small public offering and immediate trading on the American Stock Exchange.

(b) After an IPO of a venture-backed company, the vc becomes an investor in a public company, so it is not correct to suggest they do not do this. Most vc's are required to lock-up their shares for at least six months following an IPO, and most do not simply sell the minute the six months is over. They sometimes sell some and hold some and voila, they have become an investor in a public company. If they view the reverse merger not as the liquidity event but a step in the path to liquidity, that big pay day may yet await them.

I would love the chance to continue this dialogue with my super-smart friends in the vc and private equity community. Maybe some of their big firm lawyers who are regular blogees will help in suggesting these alternatives as legitimate, transparent and as effective as leaving a company private while struggling to grow and raise money.

Rule 415 and 144 Update Panel: Glimmer of Hope on Evergreen Requirement

Sorry, in this entry I'm going to use a bit of securities-lawyer speak, so I apologize in advance for those who were smart enough to skip law school.

I just attended a "webinar" put on by DealFlow Media on Rule 415, Rule 144, Form S-3 and Rule 145 changes, interpretations and the like. I attended in particular because former Associate Chief Counsel of the SEC's Division of Corporation Finance Carol McGee was on the panel. She is now at Alston & Bird, but is well known as one of the key architects of the SEC's increased enforcement of its position on Rule 415 which resulted in limiting the amount of shares that can be registered for resale following a PIPE or similar transaction.

Ms. McGee defended what they did on 415, that it was a response to some players getting somewhat out of hand registering 2 or 3 times the public float. The reaction (my view overreaction) of the staff, as I have laid out in prior posts, was to limit registration to 1/3 of the non-affiliate stock unless other circumstances exist.

Frankly there was not much new information about 415, as Ms. McGee went through the chronology of what led to the new interpretation and standards and answered a few questions about specific situations. As to 415 applied after reverse mergers, she agreed that in those cases with very little float it often made sense for the staff to be more flexible, which in many cases they have been (though lately there have been some anecdotal cases of them being tough).

More interesting was the Rule 144 discussion, which did include a fair amount of talk about 144(i) and the new rules relating to reverse mergers. First, more and more folks believe there may be an ability to remove a restrictive legend on stock, even in the presence of the "evergreen" requirements to remain current, because Rule 144 is not the only way to be exempt from registration. Other methods exist and these were discussed.

As to the evergreen requirement, Ms. McGee admitted there have been a number of questions about it and said there "may eventually be some rethinking about it." Other panelists saw this as good news - that she believes there may be another look taken at this. Another panelist talked about the "thorn in our side" resulting from the issues raised in Rule 144(i).

I posted a question and they asked it - I let them know (and I have not posted this here till now) that I have submitted a request for interpretive guidance to ask the SEC staff to determine that the new requirement to stay current only apply to companies that cease to be shells after the new rule was effective - in other words, that this part of the rule not be retroactive to companies that completed reverse mergers long before the rule was changed this past February. The panelists seem to believe that it might be difficult to get such relief, but I remain hopeful and we shall see.

I asked if the panelists believed that the Worm/Wulff letters were superseded by the new rule. They said, as I also believe and have been told by SEC staff, that the interpretation that Rule 144 is never available to former shell shareholders has been superseded since 144 now is available one year after a reverse merger and release of Form 10 information, but that other aspects of the letters, such as the prohibition on selling shares privately to a third party under Section 4(1), still apply.

OK....

"Cash and Carry" of Form 10 Shells Becomes More Popular

In my office we are seeing an noticeable increase in private companies going public through a merger with a virgin shell where, rather than convincing the shell owner to merge with them and leave the shell's owners with a percentage of the equity, the private company takes over 100% of the shell's stock. This is done through cash being put into the entity upon a merger, whereupon the former shell repurchases the stock of the former shell owners. Many in the industry refer to this as a "cash and carry" transaction.

What are the advantages of this approach? One major one is that the negotiation process between the private company and the shell becomes non-existent. The merger agreement is a virtual non-event, as the owners of the shell know they are being cashed out and do not really focus on things like representations and warranties of the private company.

Second, there is no process of convincing the shell owner of the value of your business so they will provide the shell to you. Since you are paying cash, it is simply a matter of agreeing on a price for the shell (which happens quickly) and the discussion is over.

Third, the counsel for the shell (if there even is one for this) is not likely to spend any time at all doing due diligence on the company merging in. Again, that process is to protect shareholders, all of whom will be gone upon closing. Of course the private company will review the due diligence of the shell, but for Form 10 shells this is an extremely simple process.

Prices vary over time so I don't think it appropriate to discuss the market prices (as the old saying goes, hire me and I'll tell you!). Virtually all of my clients that have set up virgin shells did so with the intention of using them in reverse mergers where they are providing or arranging financing as well and retaining equity after the transaction. However, a number have told me that they would be willing to sell one or two (if they have five, say) for cash if a buyer is out there. This helps defray the costs of setting up the shells.

Why wouldn't someone set up their own Form 10 shell for less money rather than buy one for more? Several reasons. First, if you are the company hoping to merge, you cannot set up a Form 10 shell if you know the company you will merge in. If so, the SEC requires you to disclose substantial information about that company. Second, it takes about three to four months to germinate a new shell and get it public. Most of these cash and carry deals at a higher price (which in all cases is substantially lower than buying a controlling interest in a "legacy" shell with a history of operations) are with companies that do not wish to wait that long for a shell to be created, and need a transaction now.

What about the shareholder base? Buying out the current shareholders of a Form 10 shell usually involves a small handful, often less than five shareholders. Thus you don't lose too much on your shareholder count. It is important that upon closing, the company merging in has at least 35-40 unaffiliated shareholders to qualify for listing on the OTC Bulletin Board, and a small "friends and family" round of share sales can usually take care of that.

Several years ago a handful of Form 10 shells changed hands this way when new dealmaker clients agreed to set up groups of shells with us but realized they wanted one to use immediately. Other clients would step up and sell one. Since then, most clients preferred to wait until their shells were ready, rather than buy one. The price for these cash and carry deals has gone down rather significantly, but it still usually comfortably exceeds the cost of setting one up, thus rewarding the seller for doing so.

More recently, it is not the dealmakers but the companies themselves that are requesting the option to simply cash out the shell holders. A number of my clients seem more than happy to oblige. Anything that speeds and simplifies the process at manageable cost is a valuable additional arrow in the quiver of those of us structuring deals in RM land.

Where are you from?

An earlier post talked about all the different countries blogees here are representing. I thought I would give you a flavor of what types of companies and enterprises are here. Google has some incredible analytic tools that keep track of what networks our visitors come from- and each month you come from nearly 1000 different network locations. You should always know with whom you are keeping company! Here's my unscientific review of the categories of folks who are here just in the past month (in no particular order):

1. My competitors: I am glad to see a number of my competitors (smaller law firms focusing on this space) are regular visitors. It's OK guys, happy to see you, since you are all friendly competitors. In fact one of my competitors is one of my top visitors (good to see you at the conference this week)!

2. Big law firms: As I have noted in previous posts, I am most heartened to see that large law firms have opened their minds to learn more about reverse mergers and IPO alternatives. Visitors are from the likes of Duane Morris, Skadden Arps, Morrison & Foerster, Troutman Sanders, Cooley Godward, Jones Day, Milbank Tweed, K&L Gates, Kirkpatrick & Lockhart, Kaye Scholer, O'Melveny & Myers, Akin Gump, Andrews & Kurth, Debevoise & Plimpton, Kirkland & Ellis, Pepper Hamilton, Pillsbury Madison, Thelen Reid, Baker & Botts, Clifford Chance, Davis Polk, Fried Frank, Goodwin Proctor, Greenberg Traurig, Holland & Knight, Mayer Brown, Preston Gates, Proskauer Rose, Cahill Gordon, Curtis Mallet-Provost, Dechert, Foley & Lardner, Gibson Dunn, Hale & Dorr, Latham & Watkins, Mintz Levin, Orrick Herrington and Paul Hastings.

3. The regulators: Yep, the US Securities and Exchange Commission monitors us, and I'm very happy to have them. Of course I would never write in any way other than respectfully to our regulators, even when I respectfully disagree. We also welcome visitors from the Nasdaq and the Toronto Stock Exchange to our humble blog. Also FINRA is here (although their network name is still National Association of Securities Dealers, their former name)! We also have visits from the Federal Trade Commission and the US Department of Justice.

4. Dealmakers: I know most of you and thanks for being here! Houlihan Lokey, Gruss & Company, GH Venture, Roth Capital, Jesup & Lamont, Keefe Bruyette, Maxim Group, Rodman & Renshaw, Sanders Morris, etc.

5. The big brokerage houses: CIBC, JP Morgan Chase, Lehman Brothers, Credit Suisse, Morgan Stanley, Royal Bank of Canada, Brown Brothers Harriman, Legg Mason Wood Walker have all taken a look. In truth, every major house is now involved in financings related to reverse mergers and SPACs.

6. Educators & Students are also here from Harvard University, Columbia University, Georgetown University, Dartmouth College, Johns Hopkins University, Northwestern University, New York University, Baruch College, University of Wisconsin (Madison), University of Bologna, Central Missouri State, Concorida University, Fuzhou University, Korea University, Pepperdine University, Southern California University, University of Miami, University of Rochester and University of Stellenbosch. This is cool and bodes well for the future of our industry as those coming from academia learn the benefits of these alternatives.

7. Accountants: My friends from Rothstein Kass, Deloitte & Touche, Stonefield Josephson, and others. Where are the rest of you? Probably too busy!

8. Chinese visitors: My friends from dozens of different locations. Welcome!

9. Press: Welcome Crain Communications, Boston Globe, DealFlow Media and others.

There are many others who visit from bigger networks such as AOL or a cable company that are all lopped together, but I know you are out there! Thanks again to all for your support. In just a week's time I'm off with the family for our annual trip to paradise...see you all soon!

Great conference!

Just left (a little early) the 2-day reverse merger conference here in Los Angeles. The turnout was tremendous, participants interested, and our sponsor booth got a lot of traffic! Thanks to so many of you who came up and mentioned not only reading the book but being regular blogees.

It does appear our industry is healthy and growing. One attorney panelist asked, "Why don't we do small IPOs anymore?" I answered, "Because all the underwriters who did them are gone, and this is a great alternative for companies that can benefit from a public trading stock." I went on to say that if IPOs were cheap, simple, quick and assured, reverse mergers might not even exist. But IPOs are none of the above, and as a result our industry exists.

Some highlights of the conference for me:

1. The friendly "spat" between Tim Keating and me about whether the new "evergreen" requirement, mandating that any former shell's shareholders cannot use Rule 144 if the company has not been current in its filings, is an unmitigated disaster or just an annoyance that was unnecessary but not the end of the world (I took the latter view). I will be writing more on this soon as I am in the process of interfacing with the SEC on something relating to this issue. Tim and I agree that these changes make a self-filing a more attractive option than previously.

2. If the 2000 election was all about "Florida Florida Florida," the subheading here may have been "China China China." There were some great panels on today's issues, which include some real challenges while strong opportunities remain.

3. A fascinating academic study of hundreds of reverse mergers from 1996 to today with some interesting and a few head-scratching tidbits.

4. My partner Joe Smith on a panel regarding financing and the challenge of building liquidity. His point: investors putting money into reverse mergers need to understand that they will likely be holding their stock for 1-2 years. Those who want near-term liquidity have mostly gotten out of the reverse merger game.

5. My panel on the pros and cons of Form 10 shells including a presentation by Rick Rappaport of WestPark Capital on his now famous "WRASP" structure to take a company public by merging with a virgin shell and trading directly to the American Stock Exchange.

6. The humanizing moment when the adorable young son of one of my competitors (in full tie and jacket) told the panel during the Q&A that he is happy because the stage is clean, and when he has been at other meetings like this the stage is always dirty. Warning: might just have to bring my 6-year old next time!

7. Good networking and good food at the Millennium Biltmore Hotel. And I spotted a few folks taking that victory lap around the hotel I spoke of in an earlier entry...

Heading home!

The Case For Form 10 Shells - Reprinted from The Reverse Merger Report

I now have permission to post the guest column I wrote that was included in the May issue of the Reverse Merger Report. In anticipation of my panel next week in LA (see last post), I thought it might be helpful for you blogees who may not have caught the RMR to take a look, so here it is:

The Case for Form 10 Shells

During the past three years, the formation of shell companies through the use of the Securities and Exchange Commission’s Form 10 has proliferated. Many in the reverse merger and PIPE space find these shells an efficient and valuable tool to take a company public. Some have defended and others have criticized, and there are certainly pros and cons to these so-called “virgin” shells.

Virgin shells take advantage of the fact that SEC restrictions on taking a shell company public do not apply to filings such as Form 10, which allows the creation of a fully reporting shell company with no history of operations to scrub in due diligence.

One perceived drawback is that virgin shell stock is not permitted to trade until after a reverse merger and subsequent SEC registration of shares. A further drawback often cited is that virgin shells have very few shareholders, and a shareholder base must be built to qualify for trading.

However, there are circumstances where a virgin shell can be valuable in comparison to a self-filing, where a company files its own SEC registration without a shell. Self-filing can take many months longer than a merger with a virgin shell. This matters if a company needs to close a larger sized financing sooner and an investor insists on being public to do so. In such cases, the shell merger’s speed is important. However, if a company is not in urgent need of financing, or can raise money while remaining private and waiting for completion of its self-filing, it may indeed be a better alternative.

A virgin shell also has several attributes that a “legacy” shell with a history of operations doesn’t have. Virgin shells are much less expensive to set up and maintain, and there are no past liabilities to worry about. Its shareholders, even if small in number, support the target merging in whereas legacy shell shareholders’ reactions to a proposed transaction can be unpredictable.

A legacy shell can, however, be valuable in several situations. First, if a company desires to apply to Nasdaq or the American Stock Exchange immediately following a reverse merger, the legacy shell could provide sufficient shareholders to qualify for a listing, whereas virgin shells typically do not. One exception to this is WestPark Capital’s WRASP structure, which is a way to work from a virgin shell directly to the AMEX.

Legacy shells also can be valuable where PIPE investors insist on being able to mark their investment to market every day. The lack of trading for several months following a virgin shell merger would not work for this type of investor.

I believe trading in a shell prior to a merger can actually be a negative, and that the market misperceives the value of trading. Illegal insider trading creates problems in too many deals. Thin trading following a merger can actually send a stock price down until shares are registered.
The public shareholder base represents only a tiny percentage of the outstanding stock following a deal and therefore cannot be depended on to provide any real trading until shares are registered. Some seemingly “clean” legacy shells, in fact, result from fraudulent attempts to bypass SEC restrictions on blank-check company IPOs, as noted in the famous footnote in the SEC’s reverse merger rulemaking.

Still, many continue to fork over $500,000 to $800,000 or more in order to acquire a controlling interest in a legacy shell. Unless one of the advantages above applies, all one buys is three months of trading. Trading in a virgin shell, which is sold at a significant discount and requires minimal due diligence, will most likely begin about three months after the merger.

In a merger where there is no concurrent imminent financing, a shell may indeed be unnecessary. But anytime there is a contemporaneous PIPE or other financing, a virgin shell can be a very efficient vehicle. The company does not care if trading takes a few months, because they have raised money. And investors’ primary concern is that there is a trading market by the time their shares are registered, which there likely will be.

There are absolutely situations where a self-filing or legacy shell makes sense, but there are just as many others where a totally clean, AMEX and SEC-favored virgin shell can put a company on the fast track to public status.

Off to the Reverse Merger Conference - hope you all join!

The Reverse Merger Conference, produced by DealFlow Media, takes place this week in Los Angeles. I think to summarize the state of our RM world, it is flux. But truthfully, when was it not thus? And isn't that what makes it exciting to wake up every day? The conference should be quite interesting. Here are a few tidbits of the panels and my thoughts on some:

1. On Wednesday, just after lunch (I know, not great time), I am on a panel talking about the pros and, yes cons of Form 10 shells.

2. Tim Keating will be talking about self-filings as a more attractive option than prior to the recent SEC rule changes (I agree!).

3. My partner Joe Smith will be on a panel talking about trends in financing and how to close deals in a "less than liquid" trading environment. For those of you who have never heard Joe speak at a PIPE conference, buckle your seat belts!

4. An academic study of 1900 reverse mergers since 1996 will be presented - really looking forward to that.

5. Another panel talks about where your post-merger company's stock should trade.

6. I love this totally objective topic heading: why regulators hate reverse mergers (I think some do, but many do not).

7. An update on China, SAFE 106 and such is another one I'm looking forward to. Has everyone now adopted the "sell the company to an unaffiliated BVI company and then have make-goods for the former owners allowing them to earn back the lost shares through performance" model? Some are going directly for government approval rather than these Rube Goldberg-type structures, what about that? Anyway, let's see what the experts say.

8. The last speaker is talking about how to analyze the cleanliness of a shell and will talk about footnote 32 shells. One thing I will say for those of you following my commentary on footnote 32. The SEC and those of us supporting them in issuing the footnote are fighting the equivalent of the US war on drugs. Except, unlike the US which is spending billions and managing to try to empty the ocean with a bucket, unfortunately the SEC has not even devoted the necessary enforcement resources to go after fraudulent footnote 32 shells.

All in all, as usual, Steven, Brett and Eric at DealFlow have picked the hot topics that we all want to hear more about. Also make sure you all join us at the cocktail party on Wednesday as drinks are on us at Feldman Weinstein & Smith (we are sponsoring the event)! And of course stop by our table in the sponsors' area if you want a free pen!

To my law colleagues in the RM world, thanks for a year in which we banded together to strategize about our advocacy approach to the SEC as major rule changes came about. I thank you all for that as well as for your continued professionalism and "high road" approach to your practices and work in RM. I'll post a post-mortem next weekend...

My publisher made me post this!

I am, seriously, honored that my book has recently received its second award, this time from the Axiom Business Book Awards which "recognize and promote the world's best business titles." My award was in the category of business reference books and was one of three such awards.

As I just recently posted, the impact of the book continues to amaze me. Who knows? All your support may just convince Bloomberg Press that we should consider updating it at some point with a second edition!

Thanks again for all your good wishes. Reverse Mergers makes a great Father's Day gift!

Transitions

My fabulous 18-year old daughter is graduating high school in just a few weeks. She leaves for college at the end of August. We will still revel in the hysterics our 6-year old son brings to every day, thank goodness, but we will miss her tremendously of course (actually my son may well miss her more than any of us).

Of course we will see her every few weeks, we will visit her up there, she will come home (probably to get laundry done). But she will be gone. On her own. We have done a good job and she is ready. Are we ready? Well that's probably another story.

They say when your first goes to college it's all about the child, will they adjust, how will the roommate be, classes, social life and the like. But when your last goes to college it's all about you - the empty nest, new phase of life and so on. Well we have yet a dozen years to deal with that as my son graduates in 2020! So for now, it's all about her..

College is much different today. Laundry service, storage service, there's a service for everything we tough, hardy college students of yesteryear did for ourselves. But at the same time today's colleges are pressure cookers of competition, each angling for that extra point on a test or slighter higher GPA. Just as high school seemed all about getting into college, college nowadays seems all about getting into graduate school for most.

My hopes for my daughter: achieve and succeed academically and find that area of study that sparks excitement. But not to the point of losing perspective. Have fun. Laugh all night and order pizza at 3 am. And explore all that college has to offer from extra-curriculars to community service. And make the most of the faculty that are there - get to know them and have as much one-on-one time as you can. But also - have fun.

Most kids heading to college don't realize that college is for most people the freest time of their life. No restrictions they had growing up, and no responsibilities to a job, spouse, children and so on that await them after. My wife and I envy my daughter as we recall our college years with such fondness. But it is not always a cakewalk - one of the big secrets of college is it isn't always fun.

As I often write here - one can work hard and also enjoy life or as some say - play hard. I hope my daughter finds that fabulous balance we all hope to achieve. And I hope she calls her folks a lot.

Adios Mr. Weiss

Notorious class-action lawyer Melvyn Weiss was sentenced yesterday to 30 months in prison by a Federal District Court judge in Los Angeles. Over four decades he built the biggest powerhouse specializing in suing large corporations for alleged wrongdoing to shareholders. His crime: paying people to serve as "lead plaintiffs" at the ready so he could be the first to file suit, giving him the greatest chance to be lead counsel in a major class action case and reap the largest rewards for his firm.

Paying plaintiffs, of course, is an illegal kickback. Several of Weiss' partners were also convicted, and the firm itself is still under indictment. A class action law passed in 2006 made it harder to bring these cases, which has reduced the overall case load. In the meantime, Weiss personally made over $200 million between 1985 and 2006 and became an active philanthropist and Democratic party fundraiser.

As I reported in my book, at the height of his success in 2005, Mr. Weiss was on the cover of Forbes magazine with the heading, "The most feared man in corporate America." Rumors circulated that associates in his firm rotated spending a week each in front of a Bloomberg screen looking for stocks taking a precipitious drop, which could lead to a lawsuit.

I have heard Mr. Weiss speak several times. There is no question that his eloquent assertions that the "little guy" was being trounced upon by evil management and he was there to protect them were great sound bites. And indeed there were a number of cases where Weiss and his firm took down some serious bad guys.

But I watched too many times where a major class action was brought with no apparent wrongdoing whatsoever - other than a dropping stock price. Some felt it was pure extortion - settle with us or we'll keep you in court for years, etc. Many settled as a cost of doing business. Some fought. Weiss dropped some cases when some fought him too hard.

What does this have to do with reverse mergers and the smallcap market? Everything. Every company considering going public has to take into account the potential negative that being public increases the likelihood of facing lawsuits from shareholders. Our overly litigious society creates this risk and makes it less desirable for some companies to consider taking advantage of the benefits of a publicly trading stock. It also leads some companies, among other reasons, to consider going public outside the United States where the culture is different.

Hopefully the playing field has been leveled a bit in the world of class actions with the fall of Weiss' firm and the new law. The rest will have to wait and see how our US elections turn out in November. But all in all, a positive development for public companies.