You've tried raising capital from your former bunkmates from summer camp, from other entrepreneurs, and even from your poor old mom, but you're striking out left and right. The concept for your business sounds fabulous, several of those folks tell you, sometimes passing you along to people they know. You can wait a little longer, but sooner or later you'll need backers to write the checks.
While we can't say it's gotten any easier to find equity, more and more resources have been put in place to help the most promising entrepreneurs locate wealthy individuals to invest in their businesses.
We've written a lot about the regionally oriented networks that use computers to attempt to match entrepreneurs with investors. (See "Finding the Right Investor," February., [Article link]) Scattered from Atlanta to Seattle, many of the networks are sponsored by local business groups, and they operate with an eye toward helping the local economy. But if you're looking for a matching service that brings together investors and companies from all over the country, you may want to contact Seed Capital Network, in Knoxville, Tenn. (615-573-4655).
Founded by economist Robert J. Gaston, whose study for the Small Business Administration in the mid-1980s measured the extent to which wealthy individuals were investing in private businesses, Seed Capital Network has been in operation since 1989. "One thing investors told us was that they weren't seeing enough good deals," Gaston notes. The network, which boasts a database of some 600 investors, is designed to help fill the gap.
Business owners looking for money are asked to fill out a four-page form summarizing their market, stage of development, and operating projections for the next three years. Would-be investors, meanwhile, fill out their own forms describing the characteristics (for example, industry, stage, location, and time frame for liquidity) of the deals that attract them. After keying the data into a computer, Seed Capital Network looks for matches.
Investors taking part in the matching service pay nothing, but each business owner is charged a flat fee of $199 if the search turns up more than 10 prospects and he or she elects to go forward. (If there are fewer than 10, Gaston says, owners are notified that the network can't help.) From that point on, it's entirely up to the investors (who receive copies of the original forms) to pursue matters further. The network forwards comments from uninterested investors so business owners can revise their applications if they wish.
Since Seed Capital Network only facilitates introductions -- and plays no subsequent role in any negotiations -- it's impossible to know how often the initial matches flower into bona fide deals, Gaston says. "Our best guess is that somewhere around 20% of the companies are able to raise at least some funding."* * *
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