Specialists offer advice on how to raise money

KANSAS CITY, Mo. -- More than 200 small-business owners and wannabe entrepreneurs listened for two hours last week as a host of financing and regulatory specialists talked about ways to raise money.

"And those different avenues are out there," said Brian Lane, the Securities and Exchange Commission's director of corporate finance.

Lane opened the meeting, sponsored by the SEC, at Pierson Hall at the University of Missouri-Kansas City.

With the explosive growth of the Internet, more small companies are turning to direct public offerings, or DPOs. These are offerings of stock that are sold directly to investors.

DPOs have been around for a long time, but doing one successfully involves going to lots of chamber of commerce and town hall meetings to get the word out.

Now a company wanting to do a DPO can put all the information pertaining to its stock offering on a Web site. DPOs don't involve underwriters, and that carries advantages and disadvantages. They must, however, adhere to all SEC regulations.

For instance, an underwriter provides several services to a company planning a public stock offering. Those services include doing due diligence -- making sure that all the `i's are dotted and `t's are crossed, handling the financial matters and more.

Underwriters also help set the per-share stock price of an initial public offering.

But using underwriters also adds 7 percent to 10 percent to the cost of an offering.

With a DPO, the company sets the price. But in the end, there's not a very liquid market for trading the shares.

"But what happens is the creation of these passive bulletin board systems, where someone can say, `I want to sell X number of shares at this price,' and another can say, `I want to buy X number of shares at this price,'" said Mitch Woolery, a lawyer with the Polsinelli, White, Vardeman & Shalton law firm.

DPOs aren't for all small businesses wanting to expand, Woolery said. They make the most sense when a company wants to raise up to $5 million. And they make sense for a company with a product that has sizzle, as opposed to one that's commonplace.

"It makes sense for, say, a microbrewery, but probably not for gypsum board," Woolery said.

One of the first Internet-driven DPOs was, in fact, a microbrewery, which put its Web address on its beer labels. When customers checked out the Web site, they could link to the DPO page and check out buying stock.

"It made a lot of sense in that instance," Woolery said. "It was the old adage: Good customers make good investors."

To date, about 800 successful DPOs have raised a total of about $1 billion.

Another revenue-raising idea that piqued a lot of interest at the meeting was angel investors -- wealthy individuals looking for small companies in which to invest.

Rich Bendis of the Kansas Technology Enterprise said several databases had been built to help match angel investors with companies.

ACE-Net, for example, is a national, Internet-based listing service designed to improve access to equity for small businesses.

An estimated 250,000 angel investors nationwide invest more than $20 billion a year.

"The advantages include the potential to reduce the cost of capital, to shorten the time between beginning a search for capital and getting it, and it's easy to use," Bendis said. "And there are no broker fees."

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