Dialing For Dollars

Can capital be found in cyberspace? One business goes online to find out.

By David R. Evanson

For Kane Bender and Pynn Corp., stunning one-of-a-kind crystal designs by Bender's partner, Peter Yenawine, provided a competitive edge. Foreign governments, monarchies, Fortune 1000 corporations, even representatives from the White House flocked to the company's tiny studio in Swarthmore, Pennsylvania, to commission unique crystal awards and gifts.

"For organizations that want to convey an unwavering commitment to quality and want to do it in crystal," says Bender, "Pynn Corp. has a lock on the market."

And while uniqueness has been Pynn's stock in trade, Bender believes perhaps a little bit of uniformity in the product line might not be such a bad thing. With a standard set of crystal awards and gifts, Bender figures he can lower the bar on costs and introduce Pynn products to a whole new-and much larger-base of corporate customers.

For Bender, a transition in his company's product line spells positive changes in his daily challenges. Rather than riding herd on discrete projects, he can rise above the fray, concentrating on building distribution channels and figuring out ways to pump more crystal gifts through them.

Though Bender's vision of the future is, well, crystal clear, there remains the question of the capital required to finance the company's new division. "To outfit a manufacturing and finishing facility, develop and distribute corporate gift catalogs, and purchase the initial inventory will cost somewhere in the neighborhood of $500,000," Bender says.

Like many entrepreneurs, though, Bender has spent the last decade honing his craft and making sales rather than honing the art of raising money. For this reason, he was quick to take me up on my offer to help him market his deal on the information superhighway. And why not? If the world truly is wired, then surely there's a deal to be made over any of the steadily proliferating networks and bulletin boards established specifically to play matchmaker between entrepreneurs and investors.

But experts, though aware of the potential of raising capital this way, counsel caution. "As far as matching entrepreneurs and capital online," says Jeffrey E. Sohl, director of the Center for Venture Research at the University of New Hampshire in Durham, "the U.S. capital markets are just now waking up to the possibilities. The services available to U.S. entrepreneurs are an excellent starting point from which to build a tremendous infrastructure, but they are formative at this point."

Short Circuit

Our first stop was Business Opportunities Online Inc. Based in San Diego, this bulletin board (now connected to the Internet) functions very much like newspaper classified ads. Businesses looking for capital, as well as investors looking for deals, can place an ad that's basically a thumbnail profile.

Whether or not investors and entrepreneurs find each other on Business Opportunities Online is unknown. "People never tell us if they get funding," says founder Maben Smith, "just like nobody ever calls the newspaper back to say they got a job or hired somebody or sold their washer and dryer."

Bender worked diligently filling out Business Opportunities Online's several templates, but it was rough going. "I found the [limited space] difficult," he says. "It was hard to communicate all our potential." Still, he ponied up the fees: $40 to join and post his listing for three months, plus another $50 for three hours to peruse the database of available capital for hot leads.

But in three months, Bender didn't get a single bite. No calls, no leads, no capital.

It certainly wasn't the response he'd hoped for. But Sohl says Bender, and other entrepreneurs like him, shouldn't be disappointed with this performance. "Many angel investors are hard-nosed businesspeople," Sohl explains. "They need to be able to 'touch and feel' a business before they get interested in a deal." A business that does not yield a response-any response-online, says Sohl, is sending the owner strong signals that marketing this deal effectively will require lots and lots of personal selling.

Strength In Numbers

But doubt still nagged Bender. Shouldn't he have heard something from all those investors out there in cyberspace? "Maybe it's a numbers game," he suggested.

Maybe it is. To test his theory, Bender posted his deal on America Online (AOL) to tap into its 3 million subscribers.

Within the labyrinth of America Online there's something called the AOL Marketplace that offers, among other features, classified ads. (Archrival CompuServe also sports a business classified section, where members can post ads for capital or other financial services, but I'm an AOL subscriber, so that's where we went.) A random perusal of the postings in this section was like taking a walk down the financial services midway.

Bender joined right in with a 125-word classified ad marshaled by a gripping headline that read "Finance an Established Winner"-since, after all, Bender was expanding an established business.

Headlines, it would appear, are key. At AOL, that's all the reader sees at first glance. So yours has got to stand out among the hundreds of postings already in this section.

Apparently, no one wanted to finance an established winner. But the headline "Deal of a Lifetime" generated the following response: "Call 717-762-5555. Call any time; we may be able to help you. Ask for Dorothy. Thanks."

Hmm. Pithy enough to arouse optimism. In a subsequent call Bender learned that Dorothy represented B&N Financial Services, a company with offices in Waynesboro, Pennsylvania, and Southport, Connecticut. B&N principal Dorothy Nusbaum said the company would work with Bender, help him perfect his business plan, then match him up with investors with whom they worked. B&N didn't have any capital per se; they just knew where to get it.

For entrepreneurs who don't possess this knowledge and can afford the professional fees, services like the kind B&N offers can be a real help. Bender was excited: "I'm glad there are firms out there like B&N that help protect the interests of smaller companies trying to raise capital."

But Bender's initial enthusiasm for the consultants waned once he realized just how many of them were out there. To wit: A switch to the headline "Investor Needed for Real Deal" brought the following message: "We have many lenders! Can we work together? Give us a call and let's discuss."

"But I'm not really looking for a lender so much as an equity investor," Bender reminded me.

Then there was B&V Enterprise in Omaha, Nebraska, who thanked Bender for inquiring into their service-which he hadn't really done-and then went on for 1,000 words or so to describe its own proprietary database and investor matching service. B&V claimed it had more than 10,000 North American investors on tap.

Finally, an associate at Capital Financial Consultants in Ardsley, New York, weighed in to tell Bender, "As a financial consultant, I'm in touch with numerous lending sources who make all types of business, commercial and venture capital loans."

In theory, the more times we posted our ad, the more responses we could have gotten. But Bender had already received more than enough leads. Whether they would all pan out was another matter-one that would take time and work to uncover. "If nothing else," Bender says, "this experience has taught me that a direct line to investors, meaning the ones who cut the checks, probably doesn't exist."

Besides illustrating a truism-there's no such thing as easy money-Bender's experience, according to Sohl, is a natural consequence of the relative newness of online matching services. "There is an inverse relationship between the ease of promoting the company and the 'hit rate' for raising money," Sohl explains.

For instance, venture fairs, where investors and entrepreneurs can meet one-on-one-and which are very difficult to get into-have a very high hit rate. Matching services like B&N Financial Services have a measure of quality control in the form of a fee but have dramatically lower hit rates, Sohl says-partly because investors and principals never meet, partly because there is no real weeding-out process. "With online services, anyone can place an ad," he points out, "so almost by definition, the hit rate has to be the lowest."

But even if going online doesn't provide a straight line to capital, the dauntless enthusiasm that defines entrepreneurs is probably enough to keep fledgling matchmaker services going until they reach their next stage of evolution. "I guess it's a shotgun approach," says Bender. "But that's OK. I only need one hit."

David R. Evanson, a writer and consultant, is a principal of Financial Communication Associates in Ardmore, Pennsylvania.

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