Government and small business are not always the best of friends, but once in a great while, the two manage to collaborate in a way that opens new doors of opportunity. One shining example of a great program born from the government is ACE-Net, which helps small businesses find what they otherwise could not easily find on their own.
In fact, ACE-Net--the Angel Capital Electronic Network--is one of the best places for entrepreneurs to start their search for angel capital. Since its launch in 1995, ACE-Net has helped entrepreneurs raise over $100 million.
ACE-Net, however, had its share of growing pains over the past 10 years. After the SBA gave up its central role in the organization in 2000, the ACE-Net website seemed to be more or less abandoned and neglected.
Neglected, that is, until early 2004, when the directors of ACE-Net asked Phil Borden to take the helm as CEO. Borden, a former UCLA professor, serial entrepreneur and small-business finance expert, has since breathed new life into the online entrepreneur equity-matching service with a grand vision and a host of new benefits for entrepreneurs.
A Brand-New Brand
The new and improved ACE-Net bears a new name, Active Capital, and a new URL. Any entrepreneur seeking equity partners should consider stopping by.
Ironically, Active Capital's primary advantage stems from a "No-Action Letter" from the SEC. This document essentially allows Active Capital to operate an interstate matching service for entrepreneurs and investors, so long as they stay within some very specific guidelines.
"The SEC says that the actual operations must take place in either a university or a nonprofit corporation," says Borden. "What they don't want is a bunch of consultants running the show."
By keeping the operations within a university or a nonprofit entity, the SEC hopes to avoid the potential for fraud and deception. While brokers and other consultants typically provide value by being in the middle of a transaction, Active Capital does exactly the opposite: it provides only direct contact between entrepreneurs and accredited investors, thus avoiding any unfair influence over either party.
"The investor has a safe harbor because all the statements made about the company come from the entrepreneur," says Borden. "That's important because it makes the deal fair, and [only] between the entrepreneur and the investor. We, as the middlemen, stay out of the loop."
Borden compares the new Active Capital to a dating service. "We make no comments about your warts or your beauty--we simply pass along the information," he quips. By making the process direct and free from influence, Active Capital accomplishes something else--something even more important to entrepreneurs: It eliminates the need to register the equity offering with state regulators. This is a critical benefit to entrepreneurs because state regulators have just as much authority over funding transactions as the SEC. The online registration process exempts you from having to register separately with each state.
Legislative compliance, especially multistate compliance, says Borden, is one of the most elusive aspects of raising money. "People aren't trying to avoid the law; they just don't know it. It's securities law, and it's complicated."
Entrepreneurs who solicit investors outside their circle of friends, or outside their own state, can run afoul of state "blue sky" laws. Active Capital, however, allows entrepreneurs to promote their opportunities to and raise money from investors in almost any state. "Normally, you'd have to register with state regulators in each state in which you raise money. You can spend $10,000 to $50,000 in each state to register," Borden says. "But Active Capital gets you around all that."
This seemingly impossible task is possible because one of the organization's original accomplishments was harmonizing multiple state regu-lations, creating what is now called the "model accredited investor exemption." According to Borden, 40 states now accept this definition of accredited investors. And since Active Capital accepts only accredited investors, entrepreneurs can reach out to investors almost anywhere in the country with relative impunity. "Now," says Borden, "if you live in Kansas City, you don't have to worry about whether your investor lives in Kansas or Missouri."
Behind the Scenes
When he's not worried about the vagaries of legal compliance, Borden is busy building alliances and support for Active Capital from business leaders across the country. He's assembled a strong board of directors, including members such as Entrepreneur magazine's own editorial director, Rieva Lesonsky, as well as well-known venture capitalists Amy Millman of Springboard Enterprises and Don Jacobs of Consortium Innovation Centers.
All this ought to be enough to drive entrepreneurs to the Active Capital website in droves. For those who need more convincing, Borden says there are other offerings, including news feeds from Entrepreneur and other small-business sources, and video-based tutorials on raising capital and growing businesses.
"We're in the midst of producing 15-minute videos specifically on how to prepare a business for angel funding," says Borden. "If they want to go through the whole course of 40 videos, we'll certify them and guarantee them that an angel will look at their plan."
One last tool available online is an analytic tool that enables entrepreneurs to see what kinds of SEC exemptions they qualify for according to several factors, including their state, growth stage, and rate and exit plans. "We're providing an analytic tool so people know what the regulations are in each state. You'll come on and answer some questions about your opportunity, and depending on what kind of capital you're looking for, we'll be able to tell you what your options are for raising money in your region," says Borden.
The reborn Active Capital is still in its infancy. Having replaced the original ACE-Net website just a few months ago, the new site will continue to build on Borden's vision. Says Borden, "We have a development plan for the website that will continue to increase in sophistication in the coming years."
David Worrell is an investment banker and author of the e-book Finding Funding.