New Knifemaker "Stock Market" Idea

DaveH

DaveH

Joined
Dec 2, 1999
Messages
12,249
I had this idea last night, it's probably crazy but I like it anyway.

I see this on the knifemakers forum, a knifemaker working to get established has nice work, but not enough capital to buy say a grinder. However with said grinder his/her productivity would improve as well as the quality of the work. So here's the scenario:

Need

Knifemaker needs $1000 to buy a nice grinder.

"Stock" Sale

Knife maker sells 10 "Knife stocks" at $100 each.

Redemption or Dividend

Each knife stock is redeamble in the future (say a year later) for a real knife made by the maker, the stocks value at the time of the redemption is a set value, say a $150 dollars, that is the buyer of the stock can now have a $150 credit towards having a knife they want made. As an aside, if the stock buyer changes his mind, he can sell his stock in the exchange forum.

Return on investement and win/win

So who gains from this? Knifemaker gets a grinder, stock buyer get a 50% return on their money if they get the real knife, or maybe somewhat less is they sell their stock. Essentially this is putting capital behind the custom knifemaker industry.

Another alternative is for those that want a larger return on their money, is that say stock can be renewed or purchased with the intent of the redemption be put off another year. In that case them the redemption value would rise, say another $50. SO that if you bought some 2 year stock for $100 after 2 years you'd have a $200 knife stock.

Risk

Any number of things can go wrong, maker quits making knives, never makes the knives after getting the moeny, etc. etc. It's all a matter of trust, gain and risk. So each person must decide for themselves.



What do you think about this idea?
 
Risk seems too high for the 'investor' for only a 50% return.

Better idea, less risky for everyone, legally enforcable, and an established system:
Knifemaker goes to bank, borrows $1000, makes knives and sells them, pays back bank $1000 plus interest (much less than 50%, by the way).

-Bob
 
Bob W said:
Knifemaker goes to bank, borrows $1000, makes knives and sells them, pays back bank $1000 plus interest (much less than 50%, by the way).

-Bob
Click to expand...

Like he said
 
As far as risk goes, I just sent $250 out for a knife I don't 100% percent know if I'll like or not.

As for getting a bank load, For that matter one could just use a credit card.

Since you bring the matter up, that is yet another advantage of the system, the bank or the crdit card company would want payments right away. This would defer payments.

My feeling is that people here probably spend at least $50 or $100 a month every month on a new knife. If people invested 1/10 or 1/12 of their yearly knife buying providing capital in the custom knfiemaking industry it would bring about amazing results.
 
I agree that there is a huge potential for problems. That's where the trust thing comes in. Passarounds generally work for example, with similar kinds of issues.

And you do have time to pay it off, and the "real" interest rate charged to the knifemaker is not really as high as it seems. While a bank would demand dollars as payment of interest, the stock holder would be payed in time and materials instead of dollars, which I dependeing on several variables would be much cheaper then having to pay in money.
 
Had a friend who made a movie. To raise some of the money he sold stock.To sell stock he needed to get his brokers lic. and follow all those tax and s.e.c laws.

Perhaps your calling it "stock" for lack of a better name,but I would sure check the laws before selling anything I called a stock.
 
Basically they're IOU's or maybe a promissory bond or something like that. The problem with IOU's from a maker's perspective is that they're always hanging over your head.
 
That's a good point. I imagine an IOU can either be motivating or disocuraging, depending.
 
Some interesting thoughts and replies. But still the main hurdle, who's going to enforce it?

Who's going to confirm the knifemaker spends the money on what they say? Who's going to guarantee the knife investors receive is actually worth $150? What are the consequences if a 'knifemaker' spends the money on beer and never makes a single knife?

-Bob
 
As I mentioned the key is trust.

Taking the grinder example, if the money was raised or stock sold by an organizer, not the knifemaker, then the organizer would send the money directy to Mr. Frink for example. Not a lot different then how passarounds + lottery work.

If the maker just sat around and drank beer instead of making knives then their reputation would be toast. Unfortunate, but that's the risk part.

It absolutely wouldn't be for everyone, it depends on your risk tolerance. But if you already spend $1K a year on knives, then it seems to me the risk of spending $100 on a future payoff, plus support of custom knifemaking is really not that big a deal. But for the knifemaker, getting a $1K piece of equipment to help them make knives seems like a big deal.

Clearly if the knifemaker is already established, has the equipment, then they don't need this kind of arrangement. That's why I'm thinking "Emerging Knifemaker" if you will.

I forgot to address a point. How do you know the knife is really worth $150? Two ways, as the knifemaker sells knives, there be a record of what they sell for, (assuming they sell them here on BF where everyone can see). so each person can compare what they have against what's been sold.

Also, from the knifemaker point of view, they would definately want to make sure that knife is worth what they say because once again there reputation would falter if they didn't.

The assumption is in the mean time before the "stock" is due, they are improving there skills and marketing so there product price is going up.

It would take alot of courage for both the investor and the knife maker to put themselves in this siutation, no doubt about it. But the upside is tremendous.

Would I risk my own money? Absolutely, Since I've already spent this months knife allowance. :rolleyes: I'd have o wait until next month anyway.
 
Lone Hunter said:
To sell stock he needed to get his brokers lic. and follow all those tax and s.e.c laws.

Perhaps your calling it "stock" for lack of a better name,but I would sure check the laws before selling anything I called a stock.
Click to expand...


Yup. Find a new name.

What you're really talking about here is a small-scale form of venture capital investment. It could work.
 
Exactly, venture capital,. OK it doesn't have to be stock. Call it whatever, it's the concept that's important.

Maybe, KVCC's, Knifemaker Venture Capital Coupons. We could use print KV's avatars right on the coupons themselves.

image.php


:eek:
 
DaveH said:
While a bank would demand dollars as payment of interest, the stock holder would be payed in time and materials instead of dollars, which I dependeing on several variables would be much cheaper then having to pay in money.
Click to expand...

Knifemaker uses your system.

Receives $1000 and buys his grinder. Stock holders want their $150 knives made, knife maker makes them and is debt free and has his $1000 grinder.

Knifemaker gets a loan at say 6% (it's a great time to get a loan right now):

Receives $1000 and buys his grinder. Makes 10 knives in a month or two and sells them for $150 each and rakes in $1,500. Knife maker pays off loan with intrest which would be about $5 a month for a $1,000 loan. Knife maker now has a grinder and almost $500 to invest in more supplies.
 
- Emerging makers are probably not selling 10 knives a month, perhaps more like 3 to 5, especially if they are part time.

- You're assuming a knifemaker can get a personal loan to buy a grinder.

- Again if we consider this in terms of cash flow, the bank would want payments right away. This would defer payments for a year. (In this example) While the amortization of 1000 at 6% over the life of the load is small, it's still a tangiable amount.
 
DaveH said:
- Emerging makers are probably not selling 10 knives a month, perhaps more like 3 to 5, especially if they are part time.

- You're assuming a knifemaker can get a personal loan to buy a grinder.

- Again if we consider this in terms of cash flow, the bank would want payments right away. This would defer payments for a year. (In this example) While the amortization of 1000 at 6% over the life of the load is small, it's still a tangiable amount.
Click to expand...

I guess the question is how many knife makers are in such bad financial shape that they couldn't swing a loan and would need a "stock market" kind of system? Also if a knifemaker can't get a loan from a bank, why would anyone else want to trust them and invest in them? It would only work if the investors all knew the maker and trusted them, which I know you said would be part of the formula.
 
If you can't get a $1000 loan to expand your business, then you have awful credit, probably for a good reason. Something along the lines of, you invited people to invest in your new business, took their money, then when things didn't work out as you planed, declared bankruptcy and screwed them all over.
 
A bank has certain collateral requirements, maybe a business plan, maybe a business license, and could be Significant Other would not be pleased in a loan being taken out for your "hobby".

It could be I'm totally wrong and that all new knifemakers have no trouble getting loans or covereing startup costs.

I could also see it as a way for coupon buyers to participate in the industry without having to spend teh full upfront cost to buy a knife..
 
Some banks may not want to loan someone just that much for "startup." Most startup loans are deeply into the 5 digits for a simple, small business. The problem with this system is you may get some real tools who could care less about reputation, namesake, or anything else who convince you to buy the equipment, then maybe they find they can't make a knife to save their lives. It's tough work. Grinder is helpful, but you need a lot of stuff to make knives, as well as the skill to use it. "Thanks for th grinder, guys. I also need a heat treat furnace, a good drill press, a Dremel tool, some supplies, etc..."
 
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