So have any companies since Spring Street Brewing managed to sell their own stock online? Yes, but only because they were the right kind of high-growth companies with built-in markets.
Internet Ventures Inc. (http://www.ivn.net), founded in 1995, has raised $7 million in three separate stock offerings, all through the Internet. The company provides high-speed Internet services for small communities through a marriage of telephones and one-way cable. Founder and president Don Janke, 48, started with two $1 million rounds of private placement to sophisticated investors, then worked with Direct Stock Market in Santa Monica, California, to place a $5 million public offering. "We did a lot of public relations [regarding] the product and the company," he says. Word of mouth led to the location of 900 interested shareholders, who each made an average investment of $5,000.
None of this happened overnight, however. The first round of financing took six months, the second, four months, and the public offering, 10 months, with the final $1 million being sold through a regional broker, which took three months. "Triple the amount of time you think it'll take, and halve the amount of money," Janke advises. "It's a matter of you finding the investors and the investors finding you."
It's also a matter of keeping it legal. Entrepreneurs can get in serious trouble with the Securities and Exchange Commission (SEC) by selling unregistered securities, a federal crime subject to imprisonment. It's especially easy to do that over the Internet, where you can describe your investment opportunity and send it out to the general public without realizing you're committing a crime.
Offering securities across state lines requires applying to the SEC, which strictly regulates what disclosures you have to make and to whom you must make them, in the interest of protecting the public from fraud. Private stock may be offered to "accredited investors," a special category broadly defined as millionaires and large businesses. On ACE-Net, potential investors must certify their income before receiving a password that allows them to view the opportunities-each of which has been cleared by the SEC and all participating states.
"If you're doing a public offering on the Internet, you have to register in every state unless [you state in the offer], in bold letters, that the deal is only authorized in, say, Ohio and California," says the SBA's Bibbens. He warns that if you go on for venture capital or an IPO and it turns out your private placement securities weren't properly registered, that poisons the deal. "Either the venture capital firm or the investment bank will walk away," he says. "You have to go back to every investor and offer to rescind the deal."
Accordingly, if you're posting a prospectus on a venture capital Web site, ask about compliance with securities laws. ACE-Net has a no-action letter from the SEC stating that companies following the ACE-Net format are listed legally-and 30 states have agreed that a company listing on ACE-Net doesn't have to file further registration papers in that state. That makes a difference, Bibbens says, because it costs $5,000 to $10,000 per state to register.
In short: Don't try this alone. Work with a securities lawyer to make sure you navigate the regulations properly.
Whether you're looking for a loan, some venture capital or a public stock offering, the Internet is only one arrow in your financing quiver. You still have to get your business plan in shape, learn how to present your company's goals and dreams succinctly, and follow up personally on any contacts initiated in cyberspace.
Axia Partners LLC,firstname.lastname@example.org
BR Logos & More,email@example.com
Hummer Winblad Venture Partners,http://www.humwin.com
Independentfilms.com Inc., (310) 545-1793, http://www.independentfilms.com