Interesting story on Geosign on the cover of the Financial Post Magazine. Nothing much AB.com readers didn't already know aside from some colourful details.
Although the latest line -- we've seen it here in the comments -- seems to be that American Capital knew what it was buying into, I can't quite swallow that for reasons I've previously detailed.
Also, the idea that Geosign is worth $128 million is a complete joke. A business like this was only as good as its cash flow.
Tuesday, March 4, 2008
Financial Post Magazine puts Geosign on cover
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6 comments:
Ann: A VC with billions in assets doesn't get suckered by a Guelph tech upstart. Just doesn't happen -- American knew, but maybe they're not thrilled to disclose that their bet went so wrong. Who knows? They sure aren't talking....
Hmmm. I've heard that line many times -- that a company like American Capital couldn't possibly have been suckered -- but the fact is VCs, big corporations and multi-millionaires do get suckered, and fairly regularly.
I mean we could change a few words and say, "A bank with billions in assets doesn't get suckered by an upstart with a harebrained mortgage scheme."
In reality, a fool and his money are easily parted, which is why there’s even an expression to cover it.
Now, admittedly, I have absolutely no proof American Capital was suckered but then neither do any of the people claiming it wasn’t. And until someone is willing to actually to give their name and say American Capital knew what it was getting into, the credibility level remains low.
What I find interesting about this new “American Capital knew” spin is that it’s certainly the version of the story that’s most palatable for all the participants. It saves the Geosign crew from looking like scam artists and the American Capital gang from looking like fools. So they would say that, wouldn’t they?
Of course, this spin might not go down all that well with shareholder activists interested in American Capital’s investment criteria for their money, but then it all happened far away in Canada so why not just hope the whole thing blows over…
Anne,
Mark McQueen is a VC who thinks American Capital got a "nightmare."
He wrote last summer "American Capital’s lawyers pour over the reps, but can find no way out and no misrepresentations by Geosign’s owners. Just a case of bad timing. Or good, depending on which chair you occupy."
http://seekingalpha.com/article/39318-canada-s-deal-of-the-year-may-become-a-nightmare?source=feed
I just read the McQueen article. It sure doesn't sound from what he says as if American Capital took a calculated risk.
I agree with the idea that this is spin to try and make everyone look better.
Ann, do you really think that anyone invests $160,000,000 into a company that claims to be a multi-million Dollar business without checking every piece of information they can get hold of? I don't.
Any investor looking into this would certainly ask "now, where does this money come from, exactly?" - VCs tend to grill candidates before money changes hands, even more so when a large-ish amount is involved.
My take? American knew that they were buying an arbitrage business with questionable business model. They decided that they did not have any problems with it. What they did not anticipate is the climate change with regards to Google. And surely Nye did not tell them this might happen.
Your comments are much appreciated. I've written a whole new post in reply.
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