Project 100: How a Community of Companies Can Save the Micro-cap Space

This article was originally published on Creatd: https://www.creatd.com/whitepaper/project-100-how-a-community-of-companies-can-save-the-micro-cap-space

Two days ago, Creatd, Inc. ($CRTD) announced a strategic stock swap with Hollywall Entertainment ($HWAL). Let me explain why…

Every day, I encounter skepticism about the future of the OTC market, particularly for micro and nano-cap stocks. It’s undeniable—we’ve all had a rough few years. Many companies have been caught in a vicious cycle initiated by the liquidity surge during the COVID-19 pandemic. I’ve faced these battles firsthand and understand the pessimism. But I refuse to be a casualty in a war I didn’t ask for and that now threatens my family, friends, and a 30-year career. The public markets are a rigged game; I often feel like Sisyphus pushing a boulder uphill. Yet, I remain steadfast in my belief in the American entrepreneurial dream.

In the micro-cap space today, many companies trade far below their intrinsic value, giving the impression that most are on the brink of failure. This bleak outlook overlooks rare opportunities for those astute enough to act and seize the moment. This requires a new methodology of thinking and working together as companies and as leaders. My personal involvement in CEOBLOC and its parent company Fuse Investments is part of a broader plan to unite companies, create strategies, and advocate for constructive change at the regulatory level. Over the last year and a half since the organizations were formed, there has been progress on multiple fronts. We’ve seen global regulators and even former President Trump engaging in a dialogue on a national level about naked short selling and the abuses small companies suffer at the hands of nefarious players.

To win this war, we must work together…

Introducing Project 100

Project 100 is our ambitious initiative to identify approximately 100 of the most interesting Pink Sheet nano-cap stocks that align with our broader strategic plan. Our goal is to forge a powerful network, driven by strategic and financial collaboration, to rejuvenate the micro-cap market. In this first phase, we will focus on the OTC Pink Sheets specifically. Future phases will include the OTCQB and OTCQX. On the Pink Sheets, we aim to identify the 100 stocks from a list of over 7,000. This deep dive into the Pink Sheets will determine the best investments, statistically weighed against the data to ensure the highest probability of success.

Strategic and financial collaboration, through mechanisms like stock swapping, can enhance net equity, bolster market positions, strengthen balance sheets, counter short-selling, and create unprecedented value for investors. Additionally, this approach creates an opportunity to generate value for shareholders by distributing some of the new company’s stock as special dividends to Creatd’s shareholders. Similarly, other companies can distribute Creatd’s stock to their shareholders, thereby expanding both shareholder bases.

The Problem

The OTC markets, particularly for small micro and nano-cap stocks, have faced significant challenges in recent years. The majority of companies trade well below their intrinsic value due to economic cycles, liquidity shifts, and rising interest rates. During periods of high liquidity, capital flows more freely into riskier assets, driving up valuations. Conversely, when liquidity contracts, investors become more risk-averse, leading to sharp declines in market values. This contraction is often triggered by rising interest rates or tighter monetary policies. Just like in society, contraction of capital leads to the destruction of value and prosperity.

Big Picture Solution

For many companies, survival and growth hinge on strategic and financial connections. By fostering collaboration, companies can share resources such as technology, expertise, and infrastructure to reduce costs and enhance efficiency. Collective bargaining can significantly lower exorbitant legal, accounting, and audit expenses, enabling companies to secure more favorable pricing structures together than they could individually. Joint ventures in research, development, or market expansion can spur innovation and competitiveness. Our initiative aims to establish a company that efficiently and economically manages back-office requirements at scale for this select group of publicly traded companies.

This idea only works at the foundational level if it is done through companies swapping stock and actively engaging in cross-holding arbitrage. Both play a crucial role. By swapping stock or securities, companies create a network of shared ownership. After initial stock swaps, more significant consolidation such as mergers and acquisitions will follow.

Due Diligence Process for Company Targeting

Industries were chosen for their potential resilience in the current economic cycle, identified despite inconsistent categories on the OTC site. Average daily trading volume is less relevant for stocks trading between $0.001 and $20 on this exchange, as volume is a relative measure and not necessarily an indicator of strength or viability. Often the lowest priced stocks on their way out are the most highly traded.

Comprehensive data was collected on micro-cap companies, including financial metrics, market caps, trading volumes, and industry classifications. Initial filters removed foreign stocks and companies with minimal market value. We focused on sectors with potential growth and aligned with our strategic priorities, excluding companies with market caps smaller than $1m and above $60m to focus on those with substantial market presence and recovery potential.

Selected companies are evaluated based on management talent, financial health, including liquidity ratios, debt levels, cash flow, and past performance. Additionally, market position, industry positioning, growth potential, and competitive advantages were analyzed. This structured process helps efficiently identify companies that are well-positioned to thrive and contribute to a more resilient micro-cap market.

Cross-holding Arbitrage

To implement this strategy effectively, companies need to meticulously identify suitable partners by conducting thorough due diligence like we did to find companies with strong leadership, aligned values, and products with strong potential growth. Establishing clear terms for the stock swap agreement or other M&A transactions is essential, ensuring transparency and alignment of interests.

The interconnected approach of stock swaps creates a multiplier effect, where the value of each company increases due to their collective strength and shared resources. This effect amplifies the potential growth and stability of the companies involved, as they benefit from each other’s successes and mitigated risks.

Additionally, this strategy helps deter manipulated short selling tactics. When companies are financially linked through stock swaps, short sellers face a more complex and risky environment. Instead of targeting a single company, short sellers must contend with a network of interconnected entities, making it significantly more challenging to manage their risk. This dispersed risk makes it harder for short-selling strategies to succeed, as undermining one company would necessitate undermining the entire network.

Hollywall Entertainment is the first public entity for us to engage. The partnership leverages HWAL’s extensive content library, particularly in the music industry, and Creatd’s expertise in AI archiving and community building through its OG Collection subsidiary. This transaction ignites a promising new era of growth and collaboration with multiple publicly traded companies.

The micro-cap market is rife with challenges but also holds significant opportunities for those willing to adopt innovative strategies. By systematically filtering potential investments and fostering strategic and financial collaboration, micro-cap companies can enhance their net equity, mitigate risks, and achieve sustainable growth. This interconnected approach revitalizes individual companies and strengthens the entire micro-cap ecosystem, paving the way for a more resilient and dynamic market.

What Next?

We have narrowed this list down to 100 companies and will be reaching out to each one of them directly. I am excited to see how many will participate so that we can form a community of like-minded CEOs, overlapping shareholder bases, with all stocks representing good technical and fundamental reasons for further investment.

To follow our progress on Project 100, join Creatd’s Investor Slack.

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