Engines That Move Markets 2nd Edition by Alasdair Nairn

Author:Alasdair Nairn
Language: eng
Format: epub
Published: 2018-08-08T11:05:46+00:00

Stock funding, De Forest style

The De Forest Wireless Telegraph Company had been formed in 1902 with a share capitalisation of roughly £3m ($200m). This sizeable sum was sufficient to fund initial operations, but the real expansion came with a partnership between De Forest and Abraham White. De Forest had been unable to raise further capital, despite the positive news-flow from Marconi’s transatlantic publicity. White understood that public fascination more than compensated for professional scepticism and later in 1902 changed the company’s name to the American De Forest Wireless Telegraph Company. Initially the capital was raised to $5m and in 1904 it was tripled to $15m (nearly $1bn today). From the very outset it appeared that the principals were well aware that the business would be sustained by the sale of shares rather than the generation of revenue.

It was vital, therefore, that the company stayed at the forefront of the public’s mind. This was to be achieved by specific demonstrations to the public rather than by fundamental, research-driven advances. A frequently quoted note from De Forest’s diaries sums up rather forcefully part of the purpose:

“Soon, we believe, the suckers will begin to bite. Fine fishing weather, now that the oil-fields have played out. ‘Wireless’ is the bait to use at present. May we stock our string before the wind veers and the sucker shoals are swept out to sea.”64

In order to whet the appetite of these ‘suckers’, White ensured that demonstrations were made wherever potential investors could be found. Since New York was vital, a penthouse laboratory was built in Manhattan, and with stock sales expected in Georgia a station was built in Atlanta.

Perhaps the most inspired publicity stunt came by combining the wireless with the automobile in 1903, when a car carrying a wireless station was parked in Wall Street. The list of publicity-generating events goes on, but particular use was made of press releases. The technique was to issue a press release or pass information to the press and, when it was reported (typically without any attempt at authentication), the company would then incorporate it into its advertisements for the sale of stock. Such episodes included a claim that the company had absorbed American Marconi and another that it had been appointed official supplier to the US Navy.65 If this was not powerful enough propaganda, reference to the success of the Bell Companies after initial disbelief was always available to help counter any scepticism.

Yet De Forest was not simply a manipulator. Although the genuine element of his research tended to come a distant second to the stock market operations, De Forest did build wireless systems. In the early years the majority of his work could at best be described as incremental and at worst as simply plagiarism. His approach was to investigate carefully whether there were any potential prior claims for patented work. If there were, he would copy and improve it. This was a path that inevitably led to litigation, but in the intervening period his company made large sales at low costs.

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