Cyber Cash
The sure thing that wasn't: As the initial frenzy subsides, the Internet's investment-raising potential is re-evaluated. Yes, the capital is out there-but only if you know where (and how) to look.
Andrew Klein made waves in 1995 when he raised $1.6 million for
his New York City microbrewery by offering stock to potential
investors over the Internet. Magazines and newspapers nationwide
trumpeted the first Internet-based initial public offering (IPO),
grabbing enough attention for Klein to pull in 3,500 individual
investors for Spring Street Brewing Co., which specializes in
Belgian-style wheat beer.
While online brokers had been selling stock over the Internet
for some time, Klein, 38, bypassed traditional investment banks to
appeal directly to qualified investors. And with thousands of
entrepreneurs asking him how to raise capital the same way for
their own companies, he launched Wit Capital (wit is the
Flemish word for wheat), an online investment bank and brokerage
firm that grooms companies for IPOs to the firm's member
investors.
Most of those who followed Klein's lead were not nearly as
successful. "We raised capital because we were first and got
lots of media attention," Klein says. "Since then, most
companies that have gone online and tried what we did have
failed."
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And in cyberspace, with the inherent potential for fraud, even
modest bids for capital, such as private placement opportunities,
have no guarantee of success. "There are real risks in
investing online without an investment bank," Klein says.
"If there's no intermediary, you're taking the
company's word for [its success]."
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