Guardian Angels Now called active capital, the former ACE-Net website is completely revamped and ready to help match companies with angel capital.

Government and small business are not always the best offriends, but once in a great while, the two manage to collaboratein a way that opens new doors of opportunity. One shining exampleof a great program born from the government is ACE-Net, which helpssmall businesses find what they otherwise could not easily find ontheir own.

In fact, ACE-Net--the Angel Capital Electronic Network--is oneof the best places for entrepreneurs to start their search forangel capital. Since its launch in 1995, ACE-Net has helpedentrepreneurs raise over $100 million.

ACE-Net, however, had its share of growing pains over the past10 years. After the SBA gave up its central role in theorganization in 2000, the ACE-Net website seemed to be more or lessabandoned and neglected.

Neglected, that is, until early 2004, when the directors ofACE-Net asked Phil Borden to take the helm as CEO. Borden, a formerUCLA professor, serial entrepreneur and small-business financeexpert, has since breathed new life into the online entrepreneurequity-matching service with a grand vision and a host of newbenefits for entrepreneurs.

A Brand-New Brand

The new and improved ACE-Net bears a new name, Active Capital,and a newURL. Any entrepreneur seeking equity partners should considerstopping by.

Ironically, Active Capital's primary advantage stems from a"No-Action Letter" from the SEC. This documentessentially allows Active Capital to operate an interstate matchingservice for entrepreneurs and investors, so long as they staywithin some very specific guidelines.

"The SEC says that the actual operations must take place ineither a university or a nonprofit corporation," says Borden."What they don't want is a bunch of consultants runningthe show."

By keeping the operations within a university or a nonprofitentity, the SEC hopes to avoid the potential for fraud anddeception. While brokers and other consultants typically providevalue by being in the middle of a transaction, Active Capital doesexactly the opposite: it provides only direct contact betweenentrepreneurs and accredited investors, thus avoiding any unfairinfluence over either party.

"The investor has a safe harbor because all the statementsmade about the company come from the entrepreneur," saysBorden. "That's important because it makes the deal fair,and [only] between the entrepreneur and the investor. We, as themiddlemen, stay out of the loop."

Online Matchmaking

Borden compares the new Active Capital to a dating service."We make no comments about your warts or your beauty--wesimply pass along the information," he quips. By making theprocess direct and free from influence, Active Capital accomplishessomething else--something even more important to entrepreneurs: Iteliminates the need to register the equity offering with stateregulators. This is a critical benefit to entrepreneurs becausestate regulators have just as much authority over fundingtransactions as the SEC. The online registration process exemptsyou from having to register separately with each state.

Legislative compliance, especially multistate compliance, saysBorden, is one of the most elusive aspects of raising money."People aren't trying to avoid the law; they justdon't know it. It's securities law, and it'scomplicated."

Entrepreneurs who solicit investors outside their circle offriends, or outside their own state, can run afoul of state"blue sky" laws. Active Capital, however, allowsentrepreneurs to promote their opportunities to and raise moneyfrom investors in almost any state. "Normally, you'd haveto register with state regulators in each state in which you raisemoney. You can spend $10,000 to $50,000 in each state toregister," Borden says. "But Active Capital gets youaround all that."

This seemingly impossible task is possible because one of theorganization's original accomplishments was harmonizingmultiple state regu-lations, creating what is now called the"model accredited investor exemption." According toBorden, 40 states now accept this definition of accreditedinvestors. And since Active Capital accepts only accreditedinvestors, entrepreneurs can reach out to investors almost anywherein the country with relative impunity. "Now," saysBorden, "if you live in Kansas City, you don't have toworry about whether your investor lives in Kansas orMissouri."

Behind the Scenes

When he's not worried about the vagaries of legalcompliance, Borden is busy building alliances and support forActive Capital from business leaders across the country. He'sassembled a strong board of directors, including members such asEntrepreneur magazine's own editorial director, RievaLesonsky, as well as well-known venture capitalists Amy Millman ofSpringboard Enterprises and Don Jacobs of Consortium InnovationCenters.

All this ought to be enough to drive entrepreneurs to the ActiveCapital website in droves. For those who need more convincing,Borden says there are other offerings, including news feeds fromEntrepreneur and other small-business sources, andvideo-based tutorials on raising capital and growingbusinesses.

"We're in the midst of producing 15-minute videosspecifically on how to prepare a business for angel funding,"says Borden. "If they want to go through the whole course of40 videos, we'll certify them and guarantee them that an angelwill look at their plan."

One last tool available online is an analytic tool that enablesentrepreneurs to see what kinds of SEC exemptions they qualify foraccording to several factors, including their state, growth stage,and rate and exit plans. "We're providing an analytic toolso people know what the regulations are in each state. You'llcome on and answer some questions about your opportunity, anddepending on what kind of capital you're looking for, we'llbe able to tell you what your options are for raising money in yourregion," says Borden.

The reborn Active Capital is still in its infancy. Havingreplaced the original ACE-Net website just a few months ago, thenew site will continue to build on Borden's vision. SaysBorden, "We have a development plan for the website that willcontinue to increase in sophistication in the comingyears."

David Worrell is an investment banker and author of thee-book Finding Funding.