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Online Money? For My Business? Really?

By Michael Taylor

The basic problem of getting flexible, cheap, dependable financing is one of the never-ending issues for entrepreneurs.

In the next few posts I’ll review my experience with some of the fast, cheap, on-line methods of finding small business funding. I’ve test-driven these financing solutions for my own company.

First, the bad news: There is no Goldilocks solution, because inevitably, ‘this one’s too small, this one’s too complicated, this one’s too specialized,’- you get the idea.

Next: the good news: I’ve already tried them out, so you can save time by just reading along.

Finally: If you want to research other online financial sources for your small business, I found a good clearing house of topics here.

Part I: A review of ActiveCapital.org

The first of the three on-line sources of capital I tried was Activecapital.org, which had its origin in an SBA-program to encourage angel investors in start-up businesses. ActiveCapital serves as an online matchmaker between fresh entrepreneurs and pre-qualified angel investors.

Originally titled ACE-Net, the program allows you, the entrepreneur, to apply for angel money, between $250 thousand and $5 million, by pitching your business online to qualified investors, who themselves must have met net worth and appropriateness requirements.

In my first year as an entrepreneur, I filled out the online application, which costs about $200 for a 6-month online listing. Part of the service of the site is that it explains the regulatory environment for selling equity in your business to strangers, and some of the legal hoops you need to jump through to be compliant with state and federal securities laws.

Overall the program does an admirable job of providing a relatively low-cost and legally-appropriate way to pitch your business to perfect strangers. This is especially so because ordinarily the cost of selling equity in your company to strangers is quite high, and the legal requirements are quite onerous.

As a practical fund-raising tool, however, let me save you some time here: DON’T BE SURPRISED IF THE PHONE DOESN’T RING.

The program is a neat idea in theory, which doesn’t work in practice. I don’t mean that comment as the sour-grapes of a guy who couldn’t get angel funding this way. What I really mean is that angel investors don’t invest this way. They don’t think this way.

I’ve never met an investor who would troll online for start-up companies to throw a million dollars to. On-line dating may work for relationships, but it’s really no way to find an investing soul-mate for something as personal, something as risky, as angel investing.

I basically threw my $200 into the service 4 years ago knowing in my heart that it probably wouldn’t work, but curious to see what would happen anyway. Well, the silence was deafening.

Strangely enough, though, about two weeks ago I got an email out of the blue from the ActiveCapital site, noting that a qualified investor had downloaded my company profile.

I’m really not interested in angel investors right now, and I can’t even remember what my online profile said, but I’ll admit to a momentary quickening pulse when I got the email. Will the angel investor like me?

NEXT UP: A review of CircleLending.com in Part II, and Prosper.com in Part III

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