An Offer You Can't Refuse

Manifold Benefits

Reflecting on the offering, Mocherniak says the exempt offering structure was the perfect vehicle for Lumion to raise capital at its stage of development. First, he says, the fact that Lumion did not have to rely on investment bankers or brokers to get the deal done was a big plus. "With direct access to investors offered by the state and federal exemptions," he says, "we were able to tap our own networks of friends, family and business associates to get the deal done."

Mocherniak adds that by completing an exempt public offering, Lumion was able to hold down the costs of raising money. "[Not needing] audited financial statements to do the deal was a big plus," Mocherniak adds. "Overall, our audit and legal expenses were $60,000--not trifling, but a far cry from the $500,000 we might have spent on a full-blown IPO."

Mocherniak also found the due diligence associated with exempt stock offerings more compatible with the time constraints of running a company. "We created a comprehensive offering memorandum telling prospective investors just about everything they might need to know about the company." The memorandum, combined with conversations with investors, was all Lumion needed to raise capital, he says. By contrast, the due diligence conducted by his earlier venture capital investors, says Mocherniak, "left me feeling bruised."

Another advantage was that Lumion's new investors, although serious about making money on their investment, are essentially passive and rely on management to build value. Mocherniak's venture investors were at the other end of the spectrum. "Overall," says Mocherniak, "I found their hands-on style intrusive."

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: An Offer You Can't Refuse.

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