Should you invest in ‘Sagoon mini IPO’? Read this first

Mar 19, 2017 merolagani

Have you heard or read one of those flashy advertisements by a US based social commerce startup, in Nepali media, offering an investment opportunity? Yes, it is about Sagoon Inc.- a Delaware, USA corporation that operates www.Sagoon.com, a social media platform that claims to be the pioneer of social media monetization.

The company has been issuing 869,564 shares of Class C Common Stock worth $20 million via “mini-IPO”. Interested investors will have to invest minimum of $299 for 13 shares. The offer will close on 27th March, 2017.

Some of you may be itching to invest in such an innovative company. The appeal is understandable. For users, a chance to own shares of the company that delivers the product that you can use every day (or every hour). For nonuser investors, word IPO on itself is exciting enough. However, before you jump into any investing decisions, it is wise enough to know and understand laws and rules of investments provisioned by the government.

Of course, not every public offering is a success and no investor would want their hard earned money to freeze without any returns. So, here are some of the things that are to be considered before deciding whether Sagoon deserves a place in your portfolio:

Company's business

Sagoon Inc. was founded by Govinda Giri in 2007, with the goal of developing a social commerce platform. The company intends to change the way people use and interact on social media. The company enables users to earn financial rewards while connecting with others and sharing personal experiences.

Current outstanding common stock

The growth of Sagoon Inc. was fueled and funded by a group of investors mostly from US and Canada based Nepali and Indian Communities through private placements. The company has classified the existing 3,367,100 units of outstanding common stock into three classes- Class A, Class B and Class C.

Founder and CEO Govinda Giri, owns 2,361,000 shares of Class A common stock which has one vote for each share. 999,800 shares of Class B common stock with no voting rights is owned by initial investors from friends and family and 6,300 shares of Class C common stock was issued to investors in a prior private offering. Each share of Class C common stock has 1/10 of a vote.

As of June 30, 2016 the net tangible book value of the company was ($636,907). Based on number of shares of common stock issued and outstanding, net tangible book value per share of common stock falls below ($0.19).

Voting rights

As you may have guessed it rightly, investors in this offering will be acquiring a minority interest in the company. They will have limited voting rights and will have little to no effective control over, or input into, the management or decisions of the company.

Though the class C common stockholders will be representing around 1/5th of the total shares of the company, they will possess below 5% of the total voting rights. However, as Class B stock will have no voting rights, Class A stock all of which is held by the company’s CEO will have the rest and the majority of voting rights in the company.  

Risks

The company has a limited operating history and there can be no assurance that the company will develop as planned. If it fails, investors may lose all or a substantial part of their investment. Similarly, apart from business facing intense competition from other established social media, investors in this offering will face immediate dilution of their investments.  

If the offering is fully subscribed, the net tangible book value per share of existing class C common stockholder will immediately increase by approx. $4.77 without any additional investment on their behalf and the net tangible book value per share for new investors will be immediately diluted by $18.42 per share.

Including but not limited to the risks of the company is that there is no market for the company’s shares of class C common stock. The company has not registered, and is not under any obligation to register the shares of Class C Common Stock with any regulatory authorities. That means the shares are illiquid and may not be easily resold or pledged. No market currently exists for the Class C Common Stock, and you should not expect such market will exist at any time in the future. You probably will not be able to liquidate this investment in the event of an emergency or for any other reason.

Part of the allure of being a stockholder is that you get some say in the direction of the companies you invest in. That’s not necessarily the case with Sagoon. Moreover, how long can you hold your funds for an investment with no immediate market? Ultimately, it is your decision.


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