Web Useful in 1st Step to Raising Capital--Airing a Business Plan

The electronic age has good news for business owners who want to find outside investors to make their operations grow. The Web is not the be-all and end-all when it comes to raising outside capital, but it does promise to make the job easier for business owners and investors alike.

As outlined in this space last week, you can get a business loan on the Internet from a growing number of e-lenders targeting small and mid-sized businesses. With some of these lenders, the process is so easy that you need never look a banker in the eye to get a modest business loan.

It’s not as easy to raise equity capital on the Internet, in large part because investors look for security, not in such things as your cash flow and assets, but rather in your character and experience.

You cannot, in other words, do an equity deal by remote control on the Internet. The Internet can help you simplify the first step in your search for equity capital by getting your business plan in front of potential investors.

How? In a word, the Internet brings a new efficiency to the capital marketplace for small and mid-sized businesses. In the past, that marketplace was so hard to navigate that it dissuaded many a business owner from seeking outside capital. You headed out the door with your business plan in hand only to discover that you had no idea where to find investors who might like your ideas.

Now, capitalizing on its unique ability to connect huge numbers of people, the Web can serve as an intermediary between those who seek outside capital and those who have it, giving the business owner two ways to make a connection.

You can post a synopsis of your idea on Web sites regularly perused by investors in the hope that you will attract the attention of some who understand your plan. Or you can use the Web to initiate the contact yourself, probing the likes and dislikes of potential investors to find those most likely to take an interest in your enterprise.

In either case, you accomplish only the first step in rounding up outside capital, namely identifying potential sources of financing. You must still negotiate a deal with specific backers. That can take weeks, if not months, with many an opportunity for missteps in between.

That said, a number of good Web sites seek to help you make these connections, among them:

* The Venture Capital Resource Library (https://www.vfinance.com), where you can post a synopsis of your business idea along with basic information about your business.

* The National Venture Capital Assn. (https://www.nvca.org), which lists no fewer than 323 venture capital and private equity firms along with links to many of their Web sites, allowing you to gauge the firms’ likes and dislikes.

* The National Financial Services Network (https://www.nfsn.com), which allows you to identify specific banks, investment banks, venture capital firms, insurers and other sources of finance by state.

* Commercial Finance Online (https://www.cfol.com), where you can search through a large database for financing sources likely to have an interest in your business and its capital needs.

* The Capital Network (https://www.thecapitalnetwork.com), where you can search a database of financing sources or, as an alternative, profile your capital needs and match them to potential sources.

* Garage.com (https://www.garage.com), which matches entrepreneurs and investors through a rigorous and detailed “vetting” process probing business plans, management expertise, and the like.

Some of these Web sites charge fees running into the hundreds of dollars--and sometimes pegged to the amount of financing obtained. Others offer their services free, but don’t take that to mean that you can do an equity deal on the Web for nothing. You need expert legal and accounting advice to do any equity deal. In all probability, you’ll need an investment banker at your elbow, too. None of that advice comes free, of course.

One other caution. While the Web can put information about your business and its capital needs in front of many more potential sources than you could possibly dig up on your own, it can also bring some bad actors to your door. Among them are many self-proclaimed consultants and advisors who will promise to get you all the capital you want in exchange for a retainer running into the thousands of dollars.

Ignore all such people. The Web does one thing and one thing only for the business owner seeking outside capital: It creates a marketplace in which those who seek outside capital can make contact with those who have it.

It gets the process started, but it does not make it any easier actually to do a deal. You must keep your eyes open in this marketplace as in any other.

Next week: How to use the Web to find an angel investor.

*

Juan Hovey may be reached at (805) 492-7909 or via e-mail at jhovey@gte.net