My Experiences Investing in a Start-Up: The Buy-In

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It was the late fall of 1992, I believe.  I was sitting with a friend of mine, Bob Ferris, who I knew from the Engineering Student Council in Mama’s Pizza, next to the campus of the University of Arizona.  The place was known for their pizza’s by the slice, where the pizzas were about four feet across, making one slice enough for even a hungry college student.

I started investing when I was 12 years old, buying 15 shares of Tucson Electric Power for $15.  As a result, I had been filing tax returns since about the eighth grade and was a fairly able investor by the time I went off to college.  Rather than pay for things as they arose or put money into a bank account for me, my parents had given me shares of appreciated stock, which I then sold and invested to generate the money I needed to pay for tuition, rent, and other expenses.  Doing so, while also living a fairly modest lifestyle and enjoying the Reagan stock market, I was able to actually finish undergraduate school with a little more in the portfolio than I had started with, even after paying for room-and-board for four years.

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Bob knew that I invested and had a proposition for me.  His dream was to start a virtual reality company and he was looking for shareholders.  He had asked me before if I thought issuing bonds would be a good idea.  I told him that I would be more interested in buying stock than buying bonds.  The return on a loan (bonds are a loan to a company, in exchange for interest payments) would not be worth the risk taken.  I wanted the chance to make it big if Bob’s company succeeded, given that I probably had a 95 out of 100 chance of losing everything.

By this point, Bob had incorporated the company in Delaware and was ready to issue shares.  The price was $2500 per share, with 100 shares issued, so each share represented 1% of the company.  A few months before a company had brought a virtual-reality game to the campus bookstore as a demo.  I remembered that people had lined up around the block to play the game.  I thought about the line that would be created for a virtual reality amusement center next to campus.  I pictured all sorts of virtual-reality games and students paying a couple of dollars per game to play them.  I was in.

A couple of days later we went to Bob’s apartment a couple of blocks from campus.  It was late, probably about 1:00 in the morning, and very quiet.  I wrote the biggest check that I had ever written up to that point – $5,000 – to purchase 2 shares of the new company, Ferris Productions.  Bob pulled out a book of stock certificates and put my name on one with 2 shares, then entered my name into the company ledger.  He then created certificates for himself and a few members of his family, giving each 15 shares and entered them into the ledger, before mine to prevent me from being the sole shareholder during any period of time and therefore owning the company.  I joked with him later when things were bad that I should have grabbed the one asset the company had at that time – a virtual reality helmet – and left while I owned the place.

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I left for the night and went home to my apartment across town.  The next morning I deposited the stock certificate that I had into the safe deposit box I rented from a local bank, knowing that it would stay there for quite some time.  From there I went about the life of a student, going to classes, taking exams, and doing what I needed to do to get an engineering degree.  Bob continued to work on his company while also going to classes.

About a year later, we were getting ready for the yearly campus carnival called “Spring Fling.”  The carnival featured a number of carnival rides.  Student clubs were able to set up booths and sell things to make money for their clubs.  Some obscure, shadowy committee formed by the fraternities and sororities somehow had control over the carnival and dictated who was able to sell what.  They always gave away the easiest, surest booths like selling soft drinks to their friends, so the rest of us had to be a bit more creative.  The Engineering Student Council had usually participated and in the past, we had done things like sell roasted corn-on-the-cob, which had done so-so.  This year I had a new idea – a virtual reality experience booth.

To Be Continued….

Read Part 2

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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