Rand Capital asks shareholders to sacrifice for future investments

Mar 19, 2009 (The Buffalo News - McClatchy-Tribune Information Services via COMTEX) -- RAND | Quote | Chart | News | PowerRating -- - Rand Capital Corp. is interested in raising additional funds by selling more shares of its stock so it can use to provide venture capital to upstate businesses.

But to do so, Rand is asking its shareholders to give the firm the ability to proceed with those stock sales even if the price of the new shares is less than the underlying value of the company's assets per existing share.

Rand currently isn't allowed to sell additional shares unless they are priced at or above the current net asset value per share of its stock. But the company could do it if shareholders approve the company's request at Rand's annual meeting on April 30 and the stock sale is held within the following year.

Rand executives said the stock sale could give the venture capital firm more money to invest in businesses at a time when the shrinking economy has depressed valuations and the credit crunch has deprived those businesses of many conventional financing vehicles.

As a result, the businesses that are seeking funding generally are now willing to pay higher interest rates to investors, like Rand, and also accept terms that are more favorable to the investor than in recent years.

"It's really for the flexibility to give us the opportunity to look at things in the future," said Pete Grum, Rand's president. "There are certainly opportunities. With more equity, we could pursue some of those opportunities."

Selling the shares at a discount also would make the stock offering more appealing to potential buyers since they would be paying less than full value for the new shares.

The potential downside for Rand's existing shareholders is that a stock sale at a discount to the company's asset value could significantly dilute the value of the firm's existing shares. Rand's assets also could be reduced by any fees and expenses associated with the stock sale.

Rand has not decided to definitely pursue the sale of additional shares. If it did, the company also has not decided how many shares it would attempt to sell or at what price they might be offered, Grum said.

Rand, in a filing with the Securities and Exchange Commission, said it would not sell its shares at a discount to its net asset value unless its board of directors "reasonably believes there are attractive investment opportunities that will lead to a long-term increase in net asset value."

Rand raised about $2.5 million in 1997 by selling stock through a private placement that targeted wealthy local investors, including the company's officers and directors.

Rand's stock, which closed Wednesday at $3.60, is trading slightly above its last reported net asset value of $3.54 per share from the end of December.

Rand had more than $2.7 million in cash at the end of December that it could use to fund new investments. The company has $20.2 million in net assets.

"We've got some cash and we're still looking at deals," Grum said.

drobinson@buffnews.com

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