One of the world's hottest trends is the Internet. Now its usefulness in helping early-stage companies raise money is beginning to dawn on entrepreneurs and financiers. Though still in its formative stages, the Internet may well be one of the most promising tools entrepreneurs have at their disposal for raising the capital they need to grow their businesses.
Perhaps the first person to see the opportunities the Internet offers capital-hungry entrepreneurs was one Andrew Klein, a securities attorney-turned-brewer-turned-investment banker.
The tale dates back to late 1992, when Klein, then an attorney with law firm Cravath, Swaine & Moore in New York City, took a few months off to travel with his wife. While in Holland, he was introduced to wit beer, which was brewed with wheat and spiced with orange peels and coriander. "Wit beer," says Klein, "was so popular in Holland, it had captured 5 percent of the market." And when Klein learned that wit wasn't available anywhere outside Belgium or Holland, he sensed opportunity.
It knocked on his door several months later when, back in the United States, Klein received a phone call from a Dutch brewer he had previously contacted who had cashed out on the sale of his company. Was Klein interested in teaming up to brew wit beer in the United States? By January 1993, just six months after his summer sabbatical, Klein had left his law firm (with 13 partners as investors) and was the newly minted president of Spring Street Brewing Co. in New York City.
Klein feels he had all the luck an entrepreneur could hope for starting out. Local bars could not get enough of his wit beer, there was lots of media hoopla, and distributors from across the country were calling offering to sell the product. "But when opportunity knocks," says Klein, "it usually wants money. Our initial $800,000 of capital, which seemed like a lot when we started, quickly turned into a grossly inadequate amount."
So in the fall of 1993, Klein set out to raise $2 million to $3 million from "angels" and venture capitalists. "The process was encouraging but too drawn out to satisfy the capital requirements of [my] company," recalls Klein. Running low on funds, he put together a quick private placement of $450,000 at the end of 1993 and, the following year, turned his attention back to selling beer.
In December 1994, realizing he needed an avenue to raise lots of money on a continuous basis, Klein decided to sell stock directly to the public. In the midst of borrowing an idea from ice cream manufacturer Ben & Jerry's, who early on sold stock to the public by advertising the deal on their packaging, Klein hit upon the idea that launched a thousand ships: If exposure was the name of the game, why not put his prospectus on the Internet and open the company to millions of potential investors?