Going public early through the cheaper “back door” always seems favors companies poised at high growth markets. Traditionally new technology, changes in regulation (like the recent spat of marijuana reverse mergers) and Intellectual Property help to push smaller microcap companies to raise money via the reverse merger route. Some of the more sexy markets for tech these days are also beginning to use reverse mergers to take their companies public, raise awareness and —ultimately—raise money for their businesses. The first comes to us from the maker of drones, Drone Aviation (as of the writing of this piece, the stock sits at $0.79):
So far, Drone Aviation and its subsidiary Lighter Than Air Systems (founded in 2009) has cornered the U.S. market on tethered drones. The only other companies working with tethered drones are in Italy and Israel, Hess said.
With this room of freedom in the market, Drone Aviation has been able to grow impressively. In a reverse merger earlier this year, Drone Aviation bought the public company Macrosolve, headquartered in Tulsa, Oklahoma, allowing Drone Aviation to enter the public market more quickly.
Also from 3D Group, a newly reverse merged company trading on the Australia Stock Exchange,
Graphene 3D Labs, a company with several patent applications and $1.3 million in cash has managed to increase their share price by over 100% in 5 days by touting their work in the area of 3DG. It’s difficult to say what their patent applications are even about since they have yet to appear in the USPTO patent application database, but there is nothing at all that shows this company merits their current $75 million valuation. One Australian company is looking to follow suit by partnering with a graphite miner, announcing the establishment of a 3D printing graphene company, and intends to begin trading on the ASX through a reverse merger.
Both companies comes with some interesting IP and fantastic plans for future growth–most of which ride on the assumption of widespread adoption of newer technologies. I suspect other hot markets will receive some reverse merger candidates before long, based on some individually owned Intellectual Property. These markets could include home automation, wearable tech or something related to “cloud computing.” We’re currently seeing some of the largest tech firms in the world “go long” on such tech, including Apple, Samsung, Microsoft & Google who’ve each created or acquired technology in some of the sexiest spaces in tech.
While we’ve seen some successful crowdfund campaigns of companies here in the United States for some of the other hot markets (like smart homes/home automation and wearable tech), we’ve not seen them running to go public just yet. Which in most cases is good. The stronger companies we have in the public markets, the better case for wooing investors and providing confidence in long-term sustainability, but it doesn’t mean going public couldn’t be part of their eventual strategy.
Just as an aside, reverse merger transactions are far more prevalent in Australia as a way of legitimately entering the public markets. Unfortunately, the United States has had a span of fraudulent deals turned south, brought to you by the likes of unscrupulous broker-dealers in the United States and–in some cases–foreign-owned companies performing reverse mergers into U.S. exchanges. The taint has faded some, but individual investors, as we’ve seen recently since 2008, have a long shelf-life on their memories of how they got burned. As long as the companies that are taken public perform better than they have in the past and include less strings attached, including sharks in the tank, I suspect the taint should continue to fade away–at least I hope so.
Just a note of disclaimer. We’re not in any way involved in any of the companies mentioned above and this article should not be construed as legal, accounting or investment advice in any way.