Making Money Is A Mind Set
Life After Stratton Oakmont
A Philosophy
There is an assumption about this small stock investment banking business that is universally negative in nature. That attitude is more so than in most other businesses other than used car sales. Many investors thought that there were a massive number of pure scammers and bullshit artists floating around on the smaller markets with everyone one of them trying to pry hard-earned money from unassuming individuals. This created a situation where there was a tremendous amount of money to be made doing business if it was done the right way. The massive amount of money invited the phonies in that were attempting to get some of that action for themselves without providing results.
Since I had several successful capital raises under my belt, even having one of the companies that I took public take off in terms of their share price, my name was out there among the brethren. Having your name added to the conversation in this microcosm of a world where I applied my trade, an iconic place where everyone knows everyone or knows someone that knows someone, was a very good thing indeed. In fact, I was soon becoming the hot ticket in the investment banking business among small companies. I became the person that interested individuals wanted to chat with.
That was more than fine with me. I was thoroughly enjoying my new-found notoriety that came attached with all that cash flowing into my accounts. The momentum was moving in the right direction as all systems were firmly set on go. My phone was ringing constantly, my e-mail box was filled on a daily basis with requests from potential clients, and business plans were arriving daily by mail. Brownstone was becoming a real company to be reckoned with. I came to the realization that I could no longer do everything myself, so I began thinking about bringing in permanent junior partners to work with me, unlike the temporary partners I used for each individual deal.
After thinking about this over the next couple of days, a decision was made. The first person I brought on board was an individual named Martin Wray. He was a member of the same golf club as me and struck me as a smart guy. An ex-insurance salesman that looked perfectly fit for the part, he mentioned to me that he was looking for other opportunities. He was a slightly overweight and somewhat disheveled soul that was always talking business. You could tell when talking to Martin that he was hungry to be successful. His goal in life was to make money.
Having been recently divorced from a trophy wife, I figured that I would be able to clean up some of his rough edges and transform him into a real asset for my business. From what I could tell by talking to him was that the most important aspect about him was his organizational skills. That was a trait that had escaped me my whole professional life. Being well organized was a key ingredient in bringing him in to assist me with the daily minutia. That along with that valuable salesman mentality he possessed.
At the same time, upgrading the office to flaunt my success was also a priority. I had the office re-painted in my favorite colors, sun yellow and navy blue. Some that saw the new color scheme thought it was a bit loud, but I knew that they would remember it. I then went out and purchased ultra-modern furniture for the office at a high end furniture store. Personally, my feelings were that the new pieces would work well with the colors that I had selected to paint the place. I even added my signature one-hundred-twenty-gallon fish tank to the décor.
For a little flair, I had the glass tank installed in the conference room. Complete with an array of brightly colored saltwater fish to enjoy, the life that the aquarium added satisfied my head completely. Hanging on the walls of the waiting area were framed copies of the stock certificates from previous deals that the firm had successfully completed. The thought process in doing this was to subtly inform visitors about the success that my company Brownstone had experienced over the years. Seeing a company that was in a similar sector that the person that was coming to tell me about would surely plant a seed of confidence in their mind. This way, even before we sat down to discuss their current situation, they already had an understanding that I had done what they were seeking before for someone else. Therefore, I could easily do it for them as well.
Psychologically speaking, having a third person corroboration in tow, if you will, is an extremely powerful and effective tool when attempting to make a sale. Being very familiar with an older gentleman in the business, knowing from reputation that he was a terrific money raiser, emulating him was a good idea. Knowing the lengths that he would go to create a third person corroborator himself was amazing. What he would do to impart this knowledge to potential clients was extremely clever.
For instance, he would take out a back-cover advertisement in the Sports Illustrated magazine on the company that he was attempting to raise the money for to imply that they were a well-known company that was on the move. The catch was that he would buy the advertisement for only the northern part of the North Dakota distribution market with the total cost being less than five hundred dollars. The beauty of it was that when you were in his New York office and someone would glance down at the magazine on his desk, you saw the ad staring right in front of you. It made for a very impressive statement along with a lasting memory in a positive way.
Calls along with emails were coming at me at pace that, quite honestly, was becoming hard to keep track of. Although there was one call that I received that struck a chord with me. That was from an old contact of mine, a gentleman by the name of Kirk McCaskill. I was involved with Kirk in a small oil deal a few years earlier. In that deal, we successfully raised the company three and a half million dollars and then moved the company into a Pink Sheet shell soon thereafter to begin trading. It was looking like it was going to be one of my more profitable deals until the company unfortunately drilled a series of successive dry holes.
My big mistake was not following my normal course of action and selling out of the shares in a timely manner while the stock promotion was in progress. I started to believe the hype that the company was saying that the shares were going to go much higher once the wells were drilled and the oil started gushing up from the ground. Eventually, all my shares were sold but at much lower prices than I could have had if I had just followed the plan.
Well, anyway, this gentleman Kirk tells me that he owns a company that has acquired some valuable oil property overseas. He says that he wanted to come visit me because he heard through a friend that I may be able to help him. Since he had made plans to visit some investment bankers in Manhattan already, stopping by to go over the project me made sense. He believed that it was a solid deal and wanted to see if I would like to get involved with him on bring the company to the public markets. I agreed to meet him the following week when he was traveling to be in New York on other business.
Always trying to set the stage for my pitch, I selected a Tex-Mex restaurant for the meeting. That was because I thought that being from San Antonio, Kirk would be more relaxed in familiar surroundings. That homelike feel would allow the man to open up more about what he was looking for. Arriving on time at the restaurant, wearing his customary black cowboy hat with a bolo tie around his neck, the Texan was a tad out of place in Manhattan in the outfit. Dispensing with the small talk, Kirk proceeded to immediately start pitching me his new deal.
Kirk started out our conversation by claiming that this property has approximately 400,000,000 proven barrels of grade A crude oil under the ground and his group owns all of it. For demonstration value, he pulls out from his briefcase the seismographic studies of the area to back up his claim about the oil. As though that wasn’t enough, the smooth talking gentleman produces a map that outlined the entire region where the property was located. This was an attempt to show that the region was littered with producing oil wells from one end of the southern portion of the country to the other.
So, if you do the math, multiplying the 400,000,000 barrels of proven oil reserve by the cost of a wholesale barrel of oil which was trading around $39 at the time, that gave you an oil field that was worth approximately $1,560,000,000. Then Kirk went on to explain the process of drilling for and retrieving the subterranean oil with all that was entailed. Truthfully, for the entire half hour or so that he was talking, I could care less about all the little details, paid little attention to them while feigning interest. With oil being hot commodity and prices steadily rising, my thought process was focused specifically on I how much money this deal could generate and how much money I could make.
I mean a billion and a half dollars’ worth of crude oil is a lot of oil. That was a KAACHIIIIIIIING! moment. All the while he was blabbering on about flow of product, my mind was thinking of the dough that could be made. Well, once he was finally finished with his prolonged pitch on all the virtues of the deal, Kirk then asked me what I thought about it. Well trained that I was in social discourse, the smile on my face should have given away what was about to come out of my mouth.
“This, my friend, could be a home run,” were the words that I assured him with, a line that was used by me many times before. “Something like this could be the kind of deal where everyone has a chance to make a whole lot of money.”
Citing my experience in this type of project, my extensive knowledge could assist him in taking this amazing project to the public markets. Just like the last company that we worked on together, this was a no brainer. I also explained that I could help him in his quest to raise the necessary capital that was required to complete the project, bringing everything to fruition. Taking his company public would be the easy part of the equation to handle.
Raising the forty-two million dollars that he stated which was required to finish building the infrastructure, well, that was another story altogether. I did know quite a few people on Wall Street who loved the oil and gas business, so I knew that I had plenty of places to take the project to raise the funds. However, never raising that amount of money was something of a new challenge. Never even attempting to raise more than six million, which I had done several times, cause some concern on my part. I wasn’t as confident about being able to accomplish a total raise as I let on. I also knew that once I took this company public, it would make it a lot easier for him to raise the capital that he thought was necessary. As long as the stock traded, I was going to be paid handsomely.
His only question at that point was what it would cost him to do the whole thing. Staring him in the face, I told him that the number would be $50,000, upfront with two percent of the shares issued as a kicker when the company is public. Now, I know this was a lot more than I usually charged my previous clients, but I was feeling my oats that day to be quite honest. I threw out that number without really giving it much thought or mental pondering. After stating the amount, I slightly grinned to make him feel at ease. I was also trying to read his expression once he heard the number. From the look on his face, it appeared to me that he was seriously thinking about pulling the trigger.
Being the consummate salesman, I was prepared and ready to use the old standby line that has worked many times before. That line was ‘I like this deal so much that I will do it for cost with a few extra shares thrown in on the downside.’ That statement usually clinched a deal because the client would think that if I am doing it only for cost then I must really like the opportunity. In his mind, a person would not be willing to lower the upfront costs unless they were confident that the deal could get done. That is what I would tell him if he balked at my initial proposal.
As he stared into the sky, presumably thinking about a counteroffer, I sipped on my coffee. Normally a client snaps back with an answer one way or another to discuss what my fee was all about. They either like my offer and accept it or they reject it out of hand while attempting to negotiate better terms. Rarely, if ever, do they sit quietly pondering what to do. When this very pregnant pause went on a little longer than I thought was beneficial, my mind decided that it was time to move things along.
Finally, before a syllable could come flowing from my mouth, Kirk looked straight at me and uttered the words every closer desires to hear. The man that resembled a modern cowboy simply said, “OK, what else do you need from me?”
What else? Without hesitation on my part, I fired back in a matter-of-factly way, “I will get all the paperwork out to you for signatures.”
“That’s will fine,” the kindhearted soul responded without displaying any emotion either way.
“Alright, I will e-mail you out an agreement in a few days and then we will get started on bringing this one to fruition,” was how I responded, assuming that it was a go while hoping that he would confirm my assumption.
“Great,” Kirk replied, showing the first sign that we were going forward. Reaching out to shake my hand, he added, “Hey, thanks a lot,” sounding almost relieved that he was able to convince me to do his deal and help with his company. “I truly appreciate everything that you’re doing for me.”
“My pleasure, old friend,” I assured him. “Like I said, this thing sounds like a home run to me. I will also be sending you a list of the things that I will need from you to get this thing done properly.”
“Just let me know whatever it is that you will need from me and I will make sure you get it,” he gushed. “Thanks again and I promise you that this one will turn out much differently that the last deal we did.”
“That would be a good thing for everyone involved. What would you like to order for lunch?” I said just before sipping on some water to wet why parched throat.
Another happy customer, I thought to myself, and another potential big pay day. Now as far as deals go, this had the potential to be a really good money maker. Again, I said it had the potential to be because you never really know how a deal will pan out due to the fact that you have no control over what the management of a company does. They can decide to alter the original plans anytime that they choose which can change the course of the company’s fortune.
Wasting little time
in beginning do my work, I started calling around looking for a suitable bulletin board shell to reverse the company into. Coming across one that appeared to work for my purposes, the information was sent to me for further inspection. I called up my attorney to give him the call letters on the trading shell and asked him to do his due diligence on trading vehicle. We always checked out every possible publicly traded shell that was offered to us to make sure that the entity was clean as well as suitable.
With the public shell almost secured, I ambled down to Wall Street to begin pitching the story to folks that were familiar with my work. Along with the virtues of the company, my goal was to get them involved in some way with the project. I chatted with the money managers, investments bankers and hedge funds dudes that I was associated with that were scattered throughout the magnificent borough of Manhattan. My thought process was that all I really needed to raise for this deal to show my good faith would be around five million dollars. That was a number later confirmed to me by Kirk.
With the contract fully signed and the money securely deposited in my account via a bank wire, everything was a go. I had the attorney start on all the legal documentation for the filings that were necessary to make the reverse merger happen. Three short weeks later, the reverse merger was ready to get transacted and become enforced. My problem was that until that point, I was only able to raise a little over a million dollars towards the goal. That was an amount I wasn’t sure would be enough to get things finalized with the client. If it was the season, being so close to Christmas or if it was because of the oil deal that I was previously involved with, folks were not enthusiastic about writing checks. It could have been the fact that the oil field was in a foreign country that the response was just not that good.
Nervous that the amount of money raised to that point in time wasn’t going to be enough to get Kirk to move ahead with the deal, my mind started working on the words for the next conversation. My pitch was going to express that things were going well so he need not worry about the rest of the funding. However, after speaking with Kirk about the slow process regarding the raise, he assured me that it was plenty of money to get started. By the following Thursday, the transaction was completed while all the shares were dispersed by the attorney.
Kirk’s company was successfully reversed into the public shell and was now being traded on the Bulletin Board markets. Opening on the print at a price of twenty five cents on the ask. My shares, which were deposited into my account, were free trading immediately. That would be the two million shares of free trading paper that were eagerly waiting to be sold to some hopeful investors. All that was needed was to start the promotion so that I could sell them. Five hundred fifty thousand shares out my cut were divided equally between the two promoters. We were now waiting patiently for the fireworks to begin.
To make sure things started well and got off on the right foot, I began calling people that I knew and told them about the company and that it was the next one that I was getting involved with. I may have also let it slip that we were about to do a promotion on it very shortly and they might want to take a flyer and purchase a little stock. By the time the promoters started the promotion of the stock three weeks later, the price of the shares were already approaching forty cents.
This promotion, which ran for six weeks, turned out to be one of the better ones that I had been involved with. The shares traded as high as three dollars and fifty five cents . The promotion performed exactly as planned without any glitches that commonly occur. The company also did its part perfectly by putting out quality press releases each and every week. That was the secret sauce that kept the momentum of the shares going. A perfect scenario was completed when I was able to unload all every one of my shares into a very active marketplace due to the high volume that was created.
I cleared close to $2,000,000 in those six weeks. That was a record take for me and something that I was very pleased with.
