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Ace In The Hole

A new online network could unleash a tidal wave of private capital for entrepreneurs.

To understand just how fertile the electronics business is, consider the heritage of Ed Meltzer. His parents' TV and radio repair shop, started in 1959 in Kansas City, today is not only a thriving systems integrator but has also given birth to another high-tech venture, Intelligent Wireless Systems Inc., of which Meltzer is president and CEO.

The Prairie Village, Kansas, company designs, develops, manufactures and markets proprietary wireless transceivers for the automation and control industries. For instance, the company's Automated Vehicle Locating and Information System (AVLIS), designed and manufactured for the Kansas City Area Transportation Authority, provides the transit company with up-to-the-minute information about how effectively the fleet is serving transit riders at any given moment. "The system saves them money," Meltzer says.

The evolution of the Meltzers' company--from a mom and pop enterprise serving a neighborhood to a high-tech company developing products with global applications--mirrors the changes in the American business scene at large. Although this change has been for the better, it has also created fundamental shifts in how businesses are financed. While his parents could throw their savings into opening a storefront business and, through diligent reinvestment of profits, create a prosperous family enterprise, Meltzer cannot.

Why? Because like most technology-driven companies, he must pour a fortune into research and development, and then chase down vast new technology-driven markets that materialize quickly and grow exponentially. Under this regime, the old model of reinvesting profits just doesn't work. Today, the opportunities facing many companies demand large quantities of patient, permanent equity capital upfront. For Meltzer, this upfront requirement was nearly $1 million.

In July 1996, Meltzer put together a Small Company Offering Registration (SCOR) deal for $945,000; it was approved for sale in Kansas and Missouri that fall. Meltzer hoped to close the deal by year-end, or at least reach a minimum of $671,000 in investments. But as of February 1997, his commitments totaled just $400,000.

Is something wrong with Meltzer, Intelligent Wireless or the deal? None of the above. The problem is that while the company is on the cutting edge of technology, Meltzer must contend with arcane ways of raising capital that, in the context of today's rapid pace, seem to take forever.

Specifically, Meltzer, like thousands of entrepreneurs before him and thousands more to follow, must slowly, methodically and exhaustively beat the bushes for investors. Then he must physically get himself in front of each one, make the pitch, and follow up until the check is in the mail. "To get the $400,000 committed so far," says Meltzer, "we went through about 100 investors." To get the second half of the deal done, Meltzer estimates he'll go through another 100 or so. Oy vay!

Happily, there's a better way, and Meltzer plans to take advantage of it. It's called ACE-Net, which stands for the Angel Capital Electronic Network. ACE-Net is a project sponsored by the Small Business Administration (SBA); after years of public policy debating, lobbying, and nurturing at universities and economic development organizations, the system became operational last year.

According to Terry Bibbens, entrepreneur in residence at the SBA Office of Advocacy and one of the program's many architects, ACE-Net is "an Internet-based network that provides new options to small companies looking for capital and new opportunities to so-called `accredited investors' looking for investment opportunities." Bibbens says ACE-Net removes many of the limitations entrepreneurs traditionally face when trying to link up with angels (wealthy investors) on a nationwide basis.

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This article was originally published in the May 1997 print edition of Entrepreneur with the headline: Ace In The Hole.

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