Online Venture Capital Mundelein Business Uses Web to Get Financing for Internet Firms

By Schmitt, Anne | Daily Herald (Arlington Heights, IL), June 18, 1999 | Go to article overview

Online Venture Capital Mundelein Business Uses Web to Get Financing for Internet Firms


Schmitt, Anne, Daily Herald (Arlington Heights, IL)


Byline: Anne Schmitt Daily Herald Business Writer

Greg Halpern knew about the traditional ways of raising money to build a company - and he didn't like his options.

Small businesses that turn to venture capitalists and investment banks often lose operating control over the company, or give up more ownership than they would like in order to get financing, Halpern said.

So when he wanted to raise $2.5 million for his Mundelein Web site design and multimedia business, Halpern passed over those traditional financing channels and organized his own direct stock offering in January over the Internet.

"All of a sudden, a lot of companies, large and small, started calling and they said, 'How do we do that? How do we generate our own offers?' " said Halpern, Circle Group Internet's 40-year-old founder, president and chief executive officer.

The attention turned into a new business venture for Circle, which has been designing private-label browsers for leading companies since 1997. Over the past three months, Circle has signed $1.5 million in contracts from seven firms that want to secure capital without the help of bankers or venture capitalists.

Circle's financing program, called Funds-In, bypasses the traditional capital-raising process by using the Internet where companies can find an aggressive breed of investor - one who is looking for the next Microsoft and will pay any price for it, Halpern contends.

"Today's investor is also a user of the technology. They want to own a piece of these companies that are bringing forward the technology," he said.

Halpern recognized the potential of those investors after seeing their reaction to Circle's own offering.

Circle sent out an e-mail to known Internet investors the day before Thanksgiving last year. Within three hours, the company had nearly 50 stock subscriptions for the $5 shares, Halpern said. By Jan. 2, the company was getting 50 to 100 calls a day and had raised its $2.5 million goal. Circle had to return $1 million that investors had sent in over what it had applied to sell.

"We knew it work. We didn't know it would work that well," Halpern said.

Despite the easy-money sound of the Internet model, it still must meet the stringent requirements of the Securities and Exchange Commission.

After registering to sell securities in 18 states, Circle had to prequalify investors before sending them the company's risk disclosure statement - the required list of reasons why investing in the company could be risky, Halpern said. Only then could potential investors place subscriptions for shares. There's not a liquid market for Circle Group's shares right now, but Halpern hopes to get the stock listed on Nasdaq this summer.

Funds-In, which is now a licensed investment broker, is currently reviewing 23 firms for their potential success in a private or public offering. What Halpern looks for most is a company that understands its market and has a good plan for reaching those customers.

All firms must plan to market goods or services electronically.

By the end of the year, Funds-In will represent 40 percent to 50 percent of Circle's revenue, Halpern said. It is transforming Circle from a four-person operation last year to a 55-person company by mid-summer.

Other companies also see opportunity to reach investors directly over the Internet.

"I definitely don't see this replacing the traditional IPO process, but there is a small opportunity here," said Steve Terikian, who analyzes initial public offerings for Standard & Poor's.

Wit Capital Group Inc., an Internet investment banking and brokerage firm in New York, also uses the Internet to sell shares in public offerings to individuals. …

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