Pennies From Heaven

Send me an angel, cyberscams, tomorrow's tax tips today
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7 min read

This story appears in the February 1999 issue of . Subscribe »

Do you believe in angels? Let the SBA restore your faith.

An estimated 250,000 angel investors pump more than $20 billion into business ventures each year, according to the SBA. Another million or more in the wings seek to invest between $100,000 and several million dollars to help launch or grow other small businesses.

How can you find these haloed magnates? Sign onto the new ACE-Net (Access to Capital Electronic Network). This Internet-based service was developed by the SBA's Office of Advocacy to meet the growing need for a national small-business securities market, says Terry Bibbens, the veteran entrepreneur who piloted the project from its inception three years ago at the White House Conference on Small Business to its operational phase at the end of 1998.

ACE-Net lets you list your company profile on a secure Web site seen by accredited investors only. "Companies seeking up to $1 million in equity capital simply fill out a four-page document, pay a maximum $450 fee and get quick entry to the Internet system," says Bibbens.

ACE-Net is more than just a listing, he adds: Instead of registering your securities offerings in each state, you register only once using the ACE-Net short form, which incorporates exemptions adopted by individual states. "The investor calls the company, negotiates a deal and writes a check," Bibbens explains. "No other action is needed--no legal review or state review."

Bibbens estimated at press time that by January 1999, "40 states will have adopted the streamlined program, and we should have more than 100 businesses and 650 investors participating." He projects those numbers will grow tenfold within a year or two.

The ACE-Net system is managed by a nationwide network of 32 nonprofit operators, often university- or state-based entrepreneurial development centers. Operators generally don't participate in any sales transaction. The ACE-Net Web site ( is maintained by the Whittemore School of Business and Economics, University of New Hampshire.

Paul DeCeglie ( is a former staff reporter for Journal of Commerce and American Banker.

Customer Support

By George M. Dawson

Question: Our company does computer networking and training, and develops and troubleshoots software. How could we get financing from our customers?

Answer: There's not much information on customer financing because it's unique. It's secret or "buried" financing--like source code.

What do you really need? Financing for your company, or financing of a particular customer's contract? A long-term loan/investment, or short-term financing of a deal?

As a rule, getting long-term financing from customers is like living with your mother-in-law--too much potential for conflict with no means of escape. Partnering and strategicalliance are nice words, but don't let others get too much into your stuff.

Where is the balance of power with your customers? If you provide very customized services and products, you may be able to justify upfront down payments or progress payments.

Vendors who aren't in control can still create powerful, shorter-term mutually beneficial relationships. First, know what you mean by "financing." Cash upfront or in progress? Sharing costs? Contributions of material or labor? Use of your customers' space or equipment?

Next, how creative can you be? Do you understand your customers' needs and motives? What can you barter for a change in customer behavior? Look for indirect financial and nonfinancial incentives for your customer. Will you provide free upgrades? Customized or priority helpline support? Protection against future price increases? Will you offer customers input on new product development? Extended maintenance or guarantee periods? This must be a win-win relationship.

Even though customer financing doesn't look like regular financing, get your attorney to review the agreement and put it in writing. I like using arbitration clauses in these agreements. If the deal goes bad, you'll lose a customer, so why add a lawsuit on top of it?

George M. Dawson ( is a small-business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Upstart Publishing, $16.95, 800-235-8866). Send him your financing questions at

Security Guard

Pssst. Want a hot investment tip? Beware of securities scams on the Internet.

Mounting complaints of online securities violations--more than 120 a day--have prompted the Securities and Exchange Commission (SEC) to set up a special unit focusing on the Web.

"A small group of thieves is trying to hijack unsuspecting investors on the Information Superhighway," says Richard H. Walker, enforcement director of the SEC. His agency identified more than 30 cases involving Internet-related securities fraud last year. Scams range from phony offerings and market manipulations to affinity frauds (aimed at a particular ethnic or religious group) and pyramid and Ponzi schemes.

Walker hopes the new unit will "beef up our Internet presence and continue the success of our Internet program." But investors must also be diligent. To help protect yourself from online scams, the SEC offers the following tips:

  • Investigate before investing. Don't trust what you read online. Consult a trusted financial advisor, broker or attorney.
  • Check with your state securities regulator or the SEC. Have they received complaints about the company, its managers or the promoter?
  • Don't assume people online are who they claim they are.
  • Ask the online promoter where the firm is incorporated. Verify that data with the secretary of state. Is a current annual report on file?
  • Get written financial information (prospectus, annual report, offering circular, financial statements) on any company you're considering. Beware if written data differs from online information or if you're told that such information is unavailable.
  • Be wary of promises of quick profits, offers to share "inside" information, pressure to invest immediately, and words like "guarantee," "high return" or "limited offer."
  • Watch out for offshore scams and investment opportunities in other countries.

Surety Bonds

Bonds that reimburse an individual, company or government if a firm fails to complete a contract. The SBA guarantees surety bonds in a program similar to its guaranteed loan program.

Filing For Dollars

It's too late to do anything about your 1998 taxes--other than maxing out your IRA contributions and filing your returns. But don't ignore the flurry of tax tips offered this time of year by magazines, newspapers and TV. Use them to improve your 1999 tax situation.

"It's already February, so forget what you `coulda, shoulda, woulda' done in 1998 and concentrate on 1999," suggests CPA Ed Slott. "Apply new tax tips and other advice to the current year."

The Rockville Centre, New York, accountant sees "too many [entrepreneurs] who come in without expense documentation--particularly the more successful start-ups," he says. "They're so focused on getting customers and launching their businesses, they don't take time to collect receipts or write anything down."

If you're more interested in running a business than in keeping books and records, Slott urges you to label a large manila envelope "1999 Taxes" and put all expense receipts in it. "It's the easiest bookkeeping system I know," he says, "and there's no reason not to start it now. Many businesses incur major first-year losses. Those are the returns most likely to be questioned and audited by the IRS. So save every receipt, even if you don't think it's a deduction. Your accountant can make that determination."

Should you mark each item or maintain a journal of expenses? "Not if [doing so will] get in the way of collecting the receipts in one envelope," says Slott, who publishes the monthly newsletter Ed Slott's IRA Advisor. "Keep the system simple to encourage you to do it. You may have missed some write-offs last year, but this will help maximize your tax deductions from now on."

Sole Proprietorship

The simplest and most common form of business structure in which an individual owner controls the business and is personally liable for all debts.

Contact Sources

Ed Slott's IRA Advisor, (800) 663-1340,

Securities and Exchange Commission, (202) 942-4500,


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