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Palmer's first sale wouldn't come for three more years. In 1989 he finally sold a pool heater--to a reseller in Florida--for $1,600. And the feedback from that first sale was extremely promising. After performing a test, the customer reported that his pool's water temperature had risen by 20 degrees to 98 degrees Fahrenheit. Even better, as the temperature in the pool went up, the customer's energy costs to heat the pool went down. Typically, pool owners have reported costs as high as $300 per month to heat their swimming pools. By contrast, Palmer's heater costs about $11 a month to operate, treating pool owners to a "warm pool without hot bills," as Palmer puts it.

Heating pools is not a quirky endeavor. According to Palmer, it is a $200-million annual market, based on the number and retail cost of pool heaters being sold. By the early 1990s, Palmer started thinking seriously about going public. It wasn't grandiosity; he had simply recognized that the SEC had lowered the bar for small-company securities offerings a few years before by creating the small-corporate-offering registration, or SCOR, and so-called Regulation A offerings, both of which require no or minimal scrutiny from the SEC. Subject to state regulation, companies can raise up to $1 million in a 12-month period with a SCOR, or $5 million with a Regulation A offering. Palmer talked to brokers, but none were interested in taking part in offerings below $10 million (Palmer's was less than $5 million) and the correspondingly small fees that their 10% commission would generate. No problem, he thought. He'd do it the way he had done everything else: on his own. In 1994, Palmer filed for a $1.5-million-minimum and $3-million-maximum Regulation A offering in Minnesota, and was promptly blindsided by state regulators, who told him he had only 180 days to raise the money--even though there was no such rule on the Minnesota books. Palmer eventually resolved the matter with state regulators, but the fight had been so time-consuming that the offering languished and ultimately fell short, necessitating the return of the $250,000 he had raised and placed into escrow. But Palmer walked away with a list of 1,000 interested investors, and to a few of them he sent a letter offering a private placement at a 20% discount from the public offering price, which generated $125,000.

Two years later Palmer figured it couldn't hurt to put up a Web site that provided sales and technical information about his company. It wasn't long after the site's debut that he realized the Web could be a big selling tool for SolarAttic. "People used to call about a product and ask something like, 'What's the PCS1?'" notes Jim Stanley, Palmer's half-brother and SolarAttic's vice-president of sales and marketing. "Now they download the technical manual first, and then call and say, 'Here's my credit-card number.'" By mid-1997, the site was pulling in as many as 40,000 hits a month (and it now pulls in roughly 100,000 a month).

That was the good news. The bad news was that the company was now generating far more leads and opportunities than Palmer and Stanley could handle. Ultimately, Palmer wanted to hire more people--and he figured that with an expanding array of products, the potential market he could tap into could be worth as much as $10 billion. The capital requirements of that vision, combined with the fact that he was still living on fumes himself, meant that he needed another round of financing. Drawing on a heady brew of desperation, optimism, and masochism, Palmer decided to go back to the public offering well in a big way.

While mulling over strategies for how to make things turn out better this time, Palmer stumbled across an article that told how Spring Street Brewing Co. had conducted a successful Regulation A initial public offering over the Internet. (See " The Real Legacy of Spring Street Brewing.") It all double-clicked for Palmer. To his engineer's eye, using the Web to facilitate the transfer of small plugs of money to the stock of a small company whose potentially fabulous growth was being stunted by a lack of capital was like, well, using the PCS1 to transfer heat from a stuffy attic to a chilly pool.

Three trends central to the recent evolution of our economy point to the likelihood that small investors will embrace Internet-based direct stock offerings from small companies:

• The small investor has become more independent of brokers and mutual-fund managers, less risk averse, and more enamored of IPOs.
• The Internet has gradually been greasing the gears of investment mechanisms, cutting commissions and making more investment instruments and professional-quality information about them directly available to anyone with a computer and modem.
• The country's economic engine is increasingly fueled by small companies.

Direct public offerings will provide opportunities far more interesting than today's typical IPO. Currently, the vast majority of small investors are locked out of IPOs altogether, and anyone who does manage to buy in is paying not only for a piece of the company, but also for the underwriter's 7% commission and at least 3% or so in other fees related to the costs of going public. What's more, the companies represented by today's high-profile IPOs have had their growth and market potential thoroughly plumbed by venture-capital and investment-banking pros; the chances that you'll see something that everyone else has missed, and thus end up with a true bargain, are not good.

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