Is this the most successful IPO of all-time?

If you'd just woken up from a 15-year coma you could be forgiven for thinking little has changed in financial markets. The dollar is trading at around the same levels it was in 2000, the Nasdaq Composite is just a handful of points off that year's record high, and all the talk is of the FTSE 100 and 7,000. Old hands will also remember any number of cash shells listing on AIM with nothing but hope and a big name backer on the books - think Nigel Wray and Luke Johnson. Here, again, nothing seems to have changed.

We first got a sniff of Gate Ventures (GATE) back in February when a regulatory announcement said it would list on AIM after issuing 32.42 million shares at 10p each. It was all new money.

But demand for the shares was high from the beginning and at one point on Friday they were changing hands for as much as 178p. That's a near-18-fold increase, or 1,680%, in just nine trading sessions. A lack of liquidity is clearly the problem as it was for another former IPO superstar a decade ago.

Former England Test cricketer Phil Edmonds and business partner Andrew Groves floated oil explorer White Nile in early 2005 at 10p. Its share price surged 13-fold in less than a week, causing numerous trading suspensions. Groves had something of a reputation among investors and had gathered quite a following.

It appears to be a similar case at Gate Ventures.

Gate is headed by executive chairman Geoff Morrow, a songwriter with a colourful background, having penned songs for Elvis and Barry Manilow, including "Can't Smile Without You". He's been involved in various ventures in China and currently sits on the board of China Sports Development.

He says Gate will invest in the media and entertainment sectors, most likely theatre production and the music industry in either China or the UK. "The board intends to focus on businesses using technologies such as online social media, the internet and disruptive software development," according to a statement.

Crucial here is the China link. Ten big investors, all little-known investment vehicles like Black and White Investments, Hercules Ventures, Last Capital and Bridgehead Venture Capital, each took an 8.74% stake in the business. It is understood that some of them look after ultra-high net worth individuals in China who were keen to buy Gate shares soon after the float.

Then, a week after Gate listed, it emerged that Zhu Jun had bought an 8.74% stake in the business. A statement revealed some detail about Mr Jun (Michael) Zhu. We know he’s currently the executive chairman of Chinese ecommerce firm GNet and has chaired diversified operator Sun Shine Holdings Group Inc for 15 years. And it appears he has quite a fanbase in China having made a lot of people very wealthy through GNet. That probably explains a lot of the buying after his involvement in Gate became public knowledge.

What is odd, however, is that Zhu was not involved in the Gate IPO from the start. Zhu and Morrow go back a long way and he has interests in the same kind of areas as Gate. Indeed, a recent statement said Zhu would use his contacts within the media and entertainment industry to help Gate. He'll also "build a significant investment in the company either through market purchases or a new subscription," and will become non-executive chairman in due course. Morrow will be executive deputy chairman.

Given the incredible share price surge, Gate rushed out a statement Friday in an attempt to cool things down. It reminds investors that the company only has £3 million of cash compared with a valuation of almost £58 million (at 178p). That, it says, "is not necessarily reflective of the company's position or prospects."

An initial investment of £35,000 and up to a maximum of £300,000 in a UK based theatre production is hardly exciting, either. "This is the only investment in which the company is at advanced stages of negotiation," it says.

That did succeed in taking some of the steam out of the share price - market makers shook out sellers as they marked the price down from over 170p to 120p in minutes. However, there was renewed buying at lower levels and there’s been a partial recovery to 143p.

Clearly, stock is tightly held and market makers are having trouble finding enough to sell. But even following news of Zhu's involvement, Gate is still a cash shell that’s only just making its first tiny investment. Investors who did get in early could have made life-changing amounts of money. But as we said last week, putting cash into a company about which little is known and that is largely uninvested, is incredibly high risk. There would appear to be far more downside risk here than upside potential for new investors. A gamble pure and simple.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.