Internet Funding

Like many venture capital firms, Technology Funding plans to put a big portion of its next investment fund into companies doing business on the Internet. But unlike others, the San Mateo, Calif., firm plans to raise all the money for the fund on the Internet as well.

Starting tomorrow, Technology Funding will begin accepting online applications from investors who want to participate in the new fund. The firm’s partners say this is the first time the Internet has been used to raise venture capital.

“You could look at the fund as its own Internet start-up,” said Jody Sherman, a vice president at Technology Funding, which has backed such high-tech companies as ViewLogic and NetChannel.

Venture capital firms invest in start-up companies--often before they even have a product to sell--taking risks most investors can’t afford. They typically assemble a large portfolio of companies in the hope of a big payoff from at least a few of the companies.

Most venture capital firms get the bulk of their money from pension funds, university endowments or other institutional investors. But Technology Funding started nearly two decades ago offering tax shelter investments in technology companies to individuals. As it evolved into a more traditional venture capital firm, it continued to cater to individual investors.

Greg George, a partner in the firm, said the minimum investment in the new fund will be $1,000--an unusually small stake for a venture capital fund--and that the fund will be closed when it reaches $100 million.

The fund is not for every investor. Putting money in young companies, no matter how promising, carries enormous risks. Abiding by state and federal regulations, Technology Funding requires investors in the new fund to meet certain requirements. Based on state and federal rules governing the suitability of investors for similar ventures, most individuals will have to show at least $40,000 in annual income and $40,000 net worth, excluding their primary residences and automobiles.

George said using the Internet cuts costs that would otherwise eat into the fund’s profits.

“In the past we’ve raised our funds through stockbrokers and financial planners,” he said. “The investor has had to bear the burden of those commissions, and the costs of sending out thousands of pieces of mail.”

Communications related to the new fund--from the prospectus to quarterly updates--will all be handled electronically.