Steven Allen, Nutrition Capital Network12.15.11
We’re just back from our 9th Nutrition Capital investor meeting where 22 companies raising capital presented to more than 70 investor groups. One of the topics discussed in a forum before the meeting was the funding gap for companies raising their first round who were too small to attract the interest of VCs (venture capitalists), PE (private equity) firms and the corporate venture groups.
Of course, some of these companies can successfully identify Angel investors who are happy to write relatively small checks. But most Angel groups prefer to invest in companies that are close to where they are based because many of them want to be actively involved in assisting the company. One notable exception to this—Golden Seeds (http://www.goldenseeds.com)—is a group of 170 accredited investors with members in New York, San Francisco, Boston and Los Angeles investing in women-owned enterprises irrespective of location. In addition to individual members, they also have a Fund that can invest alongside their members.
When the musical hit play “Godspell” was being revived on Broadway the producer decided to use crowd funding to raise $5 million. Of course “Godspell” was a well known hit 40 years ago and so it was perhaps unsurprising that boomers were willing to write $1000 checks to fund the revival. The unusual part is that these people became investors in the show and were therefore entitled to a profit.
This example led us to wonder whether there would be an opportunity in our industry to use a similar funding approach. At Nutrition Capital Network, we see hundreds of businesses that are suited to Angel investing but too early for VCs. Some of them have created a deep relationship with their consumers and have attracted a loyal, albeit small group of passionate repeat customers. It seems likely that some of these companies could raise equity funding from their consumers. Of course, there are several legal and practical questions about having potentially hundreds of shareholders but it has worked for some technology companies and the SEC is thought to be considering modifying its rules so that companies that do raise money in this way would not be compelled to go public (one rule for instance, requires a company with more than 500 shareholders to go public).
There are some lessons from the public capital markets. About 10 years ago, Peet’s Coffee & Tea (PEET; Nasdaq), which at the time was a small chain of coffee shops on the West Coast filed for a public offering. They used what is sometimes called a Dutch auction method to sell shares and the result was that a large number of their enthusiastic customers became shareholders. This type of offering, which was later used with much fanfare by Google when they went public, was enhanced by the access Peet’s had to their consumers through their stores. They had information about the share offering in their stores and people were invited to read the prospectus.
We are hopeful that in the next few months that an opportunity to raise capital through crowd funding will emerge in our industry. I’ll keep you posted when we have more news. In the meantime, I look forward to any comments or suggestions.
Of course, some of these companies can successfully identify Angel investors who are happy to write relatively small checks. But most Angel groups prefer to invest in companies that are close to where they are based because many of them want to be actively involved in assisting the company. One notable exception to this—Golden Seeds (http://www.goldenseeds.com)—is a group of 170 accredited investors with members in New York, San Francisco, Boston and Los Angeles investing in women-owned enterprises irrespective of location. In addition to individual members, they also have a Fund that can invest alongside their members.
When the musical hit play “Godspell” was being revived on Broadway the producer decided to use crowd funding to raise $5 million. Of course “Godspell” was a well known hit 40 years ago and so it was perhaps unsurprising that boomers were willing to write $1000 checks to fund the revival. The unusual part is that these people became investors in the show and were therefore entitled to a profit.
This example led us to wonder whether there would be an opportunity in our industry to use a similar funding approach. At Nutrition Capital Network, we see hundreds of businesses that are suited to Angel investing but too early for VCs. Some of them have created a deep relationship with their consumers and have attracted a loyal, albeit small group of passionate repeat customers. It seems likely that some of these companies could raise equity funding from their consumers. Of course, there are several legal and practical questions about having potentially hundreds of shareholders but it has worked for some technology companies and the SEC is thought to be considering modifying its rules so that companies that do raise money in this way would not be compelled to go public (one rule for instance, requires a company with more than 500 shareholders to go public).
There are some lessons from the public capital markets. About 10 years ago, Peet’s Coffee & Tea (PEET; Nasdaq), which at the time was a small chain of coffee shops on the West Coast filed for a public offering. They used what is sometimes called a Dutch auction method to sell shares and the result was that a large number of their enthusiastic customers became shareholders. This type of offering, which was later used with much fanfare by Google when they went public, was enhanced by the access Peet’s had to their consumers through their stores. They had information about the share offering in their stores and people were invited to read the prospectus.
We are hopeful that in the next few months that an opportunity to raise capital through crowd funding will emerge in our industry. I’ll keep you posted when we have more news. In the meantime, I look forward to any comments or suggestions.
