What is the advantage to your startup or first company of starting a second company?
I have not been able to get the second company to "subsidize" my first company in any large measure. Nor have I been able to see the cost advantage of merging the two companies together. The burden of any debt I create in the second company is shifted to the startup company when the two companies merge. And, the cost to merge the two companies is usually more than it cost me to launch the second company; in other words, I don't get a bargain deal and I'm usually stuck with extra debt when I merge a second company with my startup company (not to mention, my board of directors starts doing zanying things with the startup company in my absence while I'm Chairman of the second company). Maybe I'm missing something, which is very possible, but I would appreciate any enlightenment on this...
Advantage of Second Company to Startup Company
Re: Advantage of Second Company to Startup Company
There are two advantages to starting a second company:
1. Territory Access
2. To boost your personal net worth.
The first reason has limited usefulness, mainly in a scenario with limited territory access. If your first company has access to Territory 1, and your second company has access to Territory 2, Merging with Company 2 also gives you access to that Territory. Many map-makers are aware of this trick and will usually dis-allow the starting of more than one company.
The second reason is the most popular, under a specific set of circumstances. You need three things for this: At least $1 million in personal cash; At least 51% of the stock in your first company (so you can re-assume the chairmanship); and, preferably, twice as much cash in your first company as you have personally.
Here's what happens:
First, pause the game. This keeps those pesky board members from doing dumb things.
Second, Set up the new company useing only your money. Set the slider to no outside investors.
Third, re-assume the chairmanship of the first company and merge with the new company at twice the share price.
This has the effect of nearly doubleing your personal cash, and thereby boosting your personal net worth.
Essentially, you're paying yourself a big fat dividend and blowing off the other investors in your origional company.
1. Territory Access
2. To boost your personal net worth.
The first reason has limited usefulness, mainly in a scenario with limited territory access. If your first company has access to Territory 1, and your second company has access to Territory 2, Merging with Company 2 also gives you access to that Territory. Many map-makers are aware of this trick and will usually dis-allow the starting of more than one company.
The second reason is the most popular, under a specific set of circumstances. You need three things for this: At least $1 million in personal cash; At least 51% of the stock in your first company (so you can re-assume the chairmanship); and, preferably, twice as much cash in your first company as you have personally.
Here's what happens:
First, pause the game. This keeps those pesky board members from doing dumb things.
Second, Set up the new company useing only your money. Set the slider to no outside investors.
Third, re-assume the chairmanship of the first company and merge with the new company at twice the share price.
This has the effect of nearly doubleing your personal cash, and thereby boosting your personal net worth.
Essentially, you're paying yourself a big fat dividend and blowing off the other investors in your origional company.
Re: Advantage of Second Company to Startup Company
There are actually many reasons. Here's another one: Track. In some scenarios that have limited amounts of track available, the AI companies are supplied with much more, and occasionally, startup companies are intentionally or inadvertently given large amounts to start with. In some secnarios that have track awarded annually the AI's get much more than human players. It is possible to switch chairmanship to another company at the end of a year, making your original company an "AI" one, wait till the year clicks by and then switch back , and you get the large track allotment. Check out the Scenario Strategy section for "Denver & Western" where I recently wrote about how to put yourself in a winning position( the ONLY winning postion in that particular scenario)in that scenario by creative merging and chairmanship takeover in the first 2 seconds of the game. In the Southern Pacific scenario, one strategy involves gaining control of an AI company- using it to lay lots of track- then devaluing the company and merging it into your original company, which is the one you must control to win the scenario.
All that is necessary for the triumph of evil is that good men do nothing.
Edmund Burke
Re: Advantage of Second Company to Startup Company
I must also point out that Daveys post is not entirely accurate. It is NOT necessary to have $1,000,000 of personal cash to perform a company to personal cash transfer, and is many times more useful when you have much less than that. Generally speaking, if you have a positive amount of cash in your personal account, your PURCHASING POWER will be really high, therefore, you can start a company with say only 100k , then use your Purchasing Power to buy up most or all of the remaining stock on margin(and also buying back stock in the new company with its own startup cash), then switch back to your primary company and perform the merger which pumps cash into your personal account.
All that is necessary for the triumph of evil is that good men do nothing.
Edmund Burke