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Don’t Believe the Hype (Gwen Moritz Editor’s Note)

4 min read

A CPA read Senior Editor Mark Friedman’s recent article on the optimistic (to say the least) financial pronouncements of a Conway startup called Grainster and sent me a message: “Did you guys enjoy writing this? Because I sure enjoyed reading it.”

I’m not sure how to answer that. I think it’s safe to say that Friedman always enjoys reporting a meaty story, and I always enjoy editing one. And Grainster was a story we both wanted to explore in Arkansas Business because its management kept making wild claims — like being a $200 million startup with the potential to be worth $1 trillion in just 14 years.

Grainster is, or aspires to be, essentially an online clearinghouse for grain trading. It is not exactly part of the “sharing economy” (aka “trust economy”) that includes Uber, Airbnb and Roadie, the last being a pet investment of Little Rock billionaire Warren Stephens. Grainster, if I understand it correctly, is more along the lines of eBay and Etsy and even Craigslist: an online marketplace for sellers and buyers to find each other.

It may be a spectacular idea. But until $200 million is in hand, it is not a $200 million startup. In Grainster’s case, COO Cotton Rohrscheib told Friedman, “We have agreements in place for $200 million to be raised on our behalf.”

As Friedman’s story also pointed out, no company has ever had market capitalization of $1 trillion. That’s nearly half again as much as Apple’s market valuation. Either Rohrscheib and CEO Layne Fortenberry are deliberately overhyping or they truly don’t understand the numbers they’ve been spouting — and neither inspires my confidence in them as businessmen, regardless of how promising their idea may be.

In other words, they’d be eaten alive on “Shark Tank.”

The Grainster guys aren’t the only ones throwing around big, questionable numbers. As Senior Editor George Waldon reported, a company incorporated in Little Rock just six months ago has claimed that its stock is worth $1 billion. A billion isn’t a trillion, obviously, but for Red Alert Media Matrix to claim a current value of 10 figures is equally pie-in-the-sky.

When we first heard of Red Alert, led by Tim Holly of Atlanta, back in January, it was boldly bidding $59 million for the photographs and sports memorabilia amassed by John Rogers of North Little Rock. Unfortunately, Red Alert couldn’t prove that it actually had $59 million to spend. Not to get too mathematical, but it does seem like a company worth $1 billion should be able to come up with less than 6 percent of that in cash.

But it couldn’t, so now Red Alert has cut its offer by more than half — to $28 million — and pledged that $1 billion in stock. To back up that valuation, Red Alert points to a $1.4 billion “insurable value” of the Rogers assets. But if the photos and memorabilia are worth that much, why oh why is Rogers’ business in receivership? He owes “only” about $50 million, which, again, is a tiny fraction of the supposed value.

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What we’ve got here, in the immortal words of Strother Martin, is failure to communicate. When numbers get big, they sound impressive — a billion! a trillion! — but without context, they lose all meaning.

Politicians count on the blur of the big number the way car dealers count on the lure of the low monthly payment. Context is deliberately withheld in order to evoke the desired emotional response. Arkansans of my generation remember when Your Old Pal Bozo would ask, “How much do you love your mother, 100 or FORTY-FIVE?” For the slightly younger, think of Austin Powers’ nemesis Dr. Evil curling his pinky to his lips and demanding ransom of “one million dollars!” Same thing.

I do not admire anyone, politician or businessman, who takes advantage of someone else’s ignorance. But selling cars and candidates to the general public is one thing; selling crazy big numbers to lawyers, judges, creditors and well-qualified investors is something else.

I can tell you that in the Arkansas Business newsroom, there has been considerable head-shaking over both Grainster and Red Alert. We want Arkansas businesses to succeed beyond anyone’s wildest dreams, but this publication has been questioning hype for 31 years and just keeps getting the opportunity to do so. And, yeah, I guess we enjoy it.

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Our desire to keep an eye on Red Alert is heightened by the fact that Tim Holly has also been involved in another over-promise, under-deliver business venture, Soul of the South. But that’s another story.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.

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