Blind Pools- for the deaf, dumb, and blind? |

Way bank in the early 1980s, we developed a product that we thought was going to make a mint. A consumer product.

After our medical ventures and our industrial ventures, we had some funny money to spend. (Actually, back then, we used 5% of our revenue to work on projects that employed technologies that we felt should be part of our arsenal. Without obtaining client funding.)

And, we developed an over-the-counter water purification system. It would produce pure drinking water for a family of 8, At a retail cost of $300 and a per liter cost under two bits.

Our advisory board wanted us to spin this off and have the new venture go public using a “blind pool”. This meant that a company had been invented, a stock prospectus written (saying that it’s only function was to acquire a firm that would make the investors money), and funds raised.

The problem was- at least back then- those kind of firms wanted to acquire an entity that already had sales. Ours didn’t. These were typically called “penny stocks”- because their stock prices were less than a buck and were not readily traded on the exchanges- but via “pink sheets”, which listed the prices of the entities and were sold and bought by the lesser quality underwriters.

But, we did go the underwriting route. With high hopes for this new venture (BioFiltration Technologies, Ltd.) Except the underwriters absconded with the funds. Which meant we had long discussions with the Securities and Exchange Commission- until it became crystal clear that we were among those bamboozled by these cretins from Bayside (Queens) NY. (It also forced our great product to become an orphan.)

But, that’s not the point of today’s post, either. I want to discuss the blind pool concept.

Nowadays, these are more typically called “blank-check” companies or SPAC’s (special purpose acquisition companies). These entities raise capital specifically to acquire other businesses- within two years of breaking escrow. (“Breaking escrow” means the firms have raised at least the minimum funds expected and can now “spend” the investors money.) Folks who buy stock in the SPAC’s are betting on the named executives of the shell entity- that they can find and/or run the new ventures to develop great returns for the investors.

And, as was true in the late 1970s and early 1980s, these generally provide no benefits to investors. How badly have they performed? More than half the firms that began operations in 2015 and 2016 are worth less than when they had only aspirations and no operations.

More than 30 SPAC’s were born during that time period. About 85% acquired oil ventures, trucking firms, or the like. And, 20 of them are trading below $ 10- the strike price for the firm when it went public. 7 are seen to be winners- trading above the strike price. But, six have done nothing yet- they’ve acquired no firms or they’ve dissolved and returned capital to the investors. That’s after 3 or 4 years, folks!

Of course, folks who back the SPAC concept claim that this is an unfair metric to impose on their firms. Why? Because investors are allowed to pull the plug (redeem their shares) before the targeted firm has been acquired.

Back in the 1980s, regulators went after the penny stock firms (which were too often involved in fraudulent deals). By the 2000s. most of the operators were more reputable. Until the stock market crash.