Merchant bankers are like badgers. They don't take an investment position, without having built a second exit strategy, should their investment not perform up to their expectations. If plan A doesn't work, there is always a Plan B to make money from an investment that takes an unexpected turn toward being unprofitable. Their basic investment strategy is simple.

Plan A

Merchant bankers only invest in companies with income. Any company making money has a far higher survival rate than a company that isn't generating a dime. Also, the odds that the company is a scam drop from about 80% for startup companies to about 30% for operating companies.

Growing companies can't pay dividends, because they use their pretax profits to invest in the company's growth. The company's need for an equity investment reflects management's' desire to grow their company even faster. So, a merchant banker isn't seeking current profits. They want assured corporate growth and that growth should be into the Global Village.

When the merchant banker's investment results in continued rapid growth and eventual profits the merchant banker becomes a long-term investor in the company. The merchant banker expects to take their profit in 5-7 years.

Plan B

If the company fails to perform as expected, the merchant bankers' investment structure allows them to exit the company with a nice profit. Unlike venture capitalists, merchant bankers don't invest in private companies. A merchant banker only invests in public companies. Getting shares rather than an equity position means that the merchant banker can exit the company with the sale of the shares at any time after whatever holding the Law requires. This fact also ends the need of the merchant banker to have a majority equity position in the client company. If the merchant banker becomes worried, they sell their shares. They don't try to takeover the company and manage it.

By taking discounted shares over equity, the merchant banker gains two advantages. Shares are liquid and can be sold in part or whole by the merchant banker into the company's stock market. Shares trend to trade well above the balance sheet value of most public companies. You need only compare a public company's market capitalization to its balance sheet to confirm this fact. Let's assume that the company grossed ten million dollars the previous year and that we will use this simply figure as the balance sheet value of the company. To get the market capitalization of that public company, determine the issued shares from the company's filings at EDGAR, SEDAR or whatever securities commission regulates the public company. Multiplied the issued shares by the current share price and you get the market capitalization. If twenty million shares have been issued and the shares trade for two dollars per share, the market capitalization is forty million dollars. The usual leverage for a public company is a factor of four. You can easily test this thesis at the U.S. Security and Exchange Commission's (SEC) EDGAR website [http://www.sec.gov/edgar.shtml]. Pick any number of public companies at random and compare their balance sheet gross with their market capitalization.

The merchant banker usually invests on the balance sheet value of the company. Assuming the merchant bankers' PIPE (Private Investment in a Public Equity) investment doubles the company's revenues before the merchant banker perceives future corporate problems and they sell their shares at the standard fourfold valuation of the public company's share price. This means that the merchant banker makes eightfold on their LOSING investments. Compare this to the fact that venture capitalists accept the total lose of their investment in two out of every seven financings and you will why merchant banking is profitable and venture capital firms fail at a consistent rate.

How does a merchant banker define a winner? It's a company that is acquired in a few years by a multinational industry giant at market capitalization. The potential of being acquired drives the company's share price upward. The reason for the acquisition is the balance sheet value and niches that the company has acquired. How much money does the merchant banker earn from a winner? The average is forty or fifty times what they invested. What does a venture capital firm make in its winners? The average is six to tenfold.

So, a merchant bank makes eightfold on their losers and fiftyfold on their winners. A venture capitalist loses all their risk capital on their losers and makes tenfold on their winners. Which investment model should individual investors adopt?

It's evident that the merchant bankers are making money while the venture capitalists are losing money. There is only one Venture Capital Club that operates on the Merchant Bankers' Investment Model. It's the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]. The model works so well that no GVIC has ever lost a dime during our five-year history. We've become the largest venture capital club in the world. If you are an accredited investor, you might want to attend one of our new member orientation meetings. We have lots of rules to ensure everyone wins. If you can't play by our rules, you can't play in our game. However, our investment model works.

No investment is without risk. Municipal bond issues, like WHOOPS have failed. And, past performance isn't assurance of future profits. However, for decades the Merchant Bankers' Stock Investment Model has outperformed the venture capital investment model. Isn't it time you switched investment models?