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 GOVERNMENT
and small business are not always the best of friends,
but once in a great while, the two manage to collaborate
in a way that opens new doors of opportunity. One shining
example of a great program born from the government
is ACE-Net, which helps small businesses find what they
otherwise could not easily find on their own.
In fact, ACE-Net--the Angel Capital Electronic Network--is
one of the best places for entrepreneurs to start their
search for angel capital. Since its launch in 1995,
ACE-Net has helped entrepreneurs raise over $100 million.
ACE-Net, however, had its share of growing pains over
the past 10 years. After the SBA gave up its central
role in the organization in 2000, the ACE-Net website
seemed to be more or less abandoned and neglected.
Neglected, that is, until early 2004, when the directors
of ACE-Net asked Phil Borden to take the helm as CEO.
Borden, a former UCLA professor, serial entrepreneur
and small-business finance expert, has since breathed
new life into the online entrepreneur equity-matching
service with a grand vision and a host of new benefits
for entrepreneurs.
A Brand-New Brand
The new and improved ACE-Net bears a new name, Active
Capital, and a new URL (www.activecapital. org). Any
entrepreneur seeking equity partners should consider
stopping by.
Ironically, Active Capital's primary advantage stems
from a "No-Action Letter" from the SEC. This
document essentially allows Active Capital to operate
an interstate matching service for entrepreneurs and
investors, so long as they stay within some very specific
guidelines.
"The SEC says that the actual operations must
take place in either a university or a nonprofit corporation,"
says Borden. "What they don't want is a bunch of
consultants running the show."
By keeping the operations within a university or a
nonprofit entity, the SEC hopes to avoid the potential
for fraud and deception. While brokers and other consultants
typically provide value by being in the middle of a
transaction, Active Capital does exactly the opposite:
it provides only direct contact between entrepreneurs
and accredited investors, thus avoiding any unfair influence
over either party.
"The investor has a safe harbor because all the
statements made about the company come from the entrepreneur,"
says Borden. "That's important because it makes
the deal fair, and [only] between the entrepreneur and
the investor. We, as the middlemen, stay out of the
loop."
Online Matchmaking
Borden compares the new Active Capital to a dating
service. "We make no comments about your warts
or your beauty--we simply pass along the information,"
he quips. By making the process direct and free from
influence, Active Capital accomplishes something else--something
even more important to entrepreneurs: It eliminates
the need to register the equity offering with state
regulators. This is a critical benefit to entrepreneurs
because state regulators have just as much authority
over funding transactions as the SEC. The online registration
process exempts you from having to register separately
with each state.
Legislative compliance, especially multistate compliance,
says Borden, is one of the most elusive aspects of raising
money. "People aren't trying to avoid the law;
they just don't know it. It's securities law, and it's
complicated."
Entrepreneurs who solicit investors outside their circle
of friends, or outside their own state, can run afoul
of state "blue sky" laws. Active Capital,
however, allows entrepreneurs to promote their opportunities
to and raise money from investors in almost any state.
"Normally, you'd have to register with state regulators
in each state in which you raise money. You can spend
$10,000 to $50,000 in each state to register,"
Borden says. "But Active Capital gets you around
all that."
This seemingly impossible task is possible because
one of the organization's original accomplishments was
harmonizing multiple state regulations, creating what
is now called the "model accredited investor exemption."
According to Borden, 40 states now accept this definition
of accredited investors. And since Active Capital accepts
only accredited investors, entrepreneurs can reach out
to investors almost anywhere in the country with relative
impunity. "Now," says Borden, "if you
live in Kansas City, you don't have to worry about whether
your investor lives in Kansas or Missouri."
Behind the Scenes
When he's not worried about the vagaries of legal compliance,
Borden is busy building alliances and support for Active
Capital from business leaders across the country. He's
assembled a strong board of directors, including members
such as Entrepreneur magazine's own editorial director,
Rieva Lesonsky, as well as well-known venture capitalists
Amy Millman of Springboard Enterprises and Don Jacobs
of Consortium Innovation Centers.
All this ought to be enough to drive entrepreneurs
to the Active Capital website in droves. For those who
need more convincing, Borden says there are other offerings,
including news feeds from Entrepreneur and other small-business
sources, and video-based tutorials on raising capital
and growing businesses.
"We're in the midst of producing 15-minute videos
specifically on how to prepare a business for angel
funding," says Borden. "If they want to go
through the whole course of 40 videos, we'll certify
them and guarantee them that an angel will look at their
plan."
One last tool available online is an analytic tool
that enables entrepreneurs to see what kinds of SEC
exemptions they qualify for according to several factors,
including their state, growth stage, and rate and exit
plans. "We're providing an analytic tool so people
know what the regulations are in each state. You'll
come on and answer some questions about your opportunity,
and depending on what kind of capital you're looking
for, we'll be able to tell you what your options are
for raising money in your region," says Borden.
The reborn Active Capital is still in its infancy.
Having replaced the original ACE-Net website just a
few months ago, the new site will continue to build
on Borden's vision. Says Borden, "We have a development
plan for the website that will continue to increase
in sophistication in the coming years."
DAVID WORRELL is an investment banker and author of
the e-book Finding Funding. Contact him at david@dworrell.com.
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