Surf The Net To Find Capital For Business

Carl Lalomia, president of US Cybersites, dreams of tapping into the Internet and finding the $4 million or $5 million needed to expand his Manhattan-based Internet connection business.

“We are looking for capital without having to give away the farm,” said Lalomia. “And what better place than the Internet to try to surf for some investment capital?”

A former hotel executive, Lalomia and a group of silent partners started the business a couple of years ago with less than $50,000. Through high-speed communications technology, US Cybersites turns dumb office buildings into “smart” ones, providing tenants with direct, high-speed Internet access. In 1996, servicing about 60 customers generated about $1 million in sales. With more cash, they hope to wire buildings coast to coast.

Although it’s not fully operational yet, Lalomia’s been checking out the U.S. Small Business Administration’s ACE-NET (Angel Capital Electronic Network). Blessed by the Securities and Exchange Commission and state securities administrators, the government-sponsored service is still in the early demonstration phase, with only a handful of investors and entrepreneurs signed up. To check it out go to http:/ /www.sbaonline.sba.gov or http://ACENET.unh.edu.

Qualified investors and entrepreneurs looking for each other can register via four network operators: the Technology Capital Network at MIT in Cambridge, Mass.; the Capital Network Inc., in Austin, Texas; the Accelerate Technology Small Business Development Center at University of California Irvine; and the Advanced Technology Development Center at the Georgia Institute of Technology in Atlanta.

SBA officials say ACE-NET is designed for entrepreneurs looking for between $250,000 and $5 million, slightly less than the $6.7 million invested on average by venture capitalists. The SBA estimates that private “angel” investors invest about $20 billion a year in more than 30,000 small businesses.

“We think there will be several thousand businesses signing up within the first few years,” predicts Jere Glover, the SBA’s chief of advocacy. Glover has been working on the project for months, pulling together private and public resources to get this national network off the ground.

“ACE-NET is the only angel network that has received SEC approval,” said Glover. That means the SEC issued a “no-action” letter saying the SEC will not recommend any enforcement action against the online service. However, potential investors still have to comply with state rules and regulations governing private investments.

Investors and entrepreneurs will pay a few hundred dollars to enroll, but the fees haven’t been firmed up just yet. The network operators will set the fees, so check with them.

Meanwhile, others involved in making entrepreneurial deals are watching ACE-NET and other online services with a cautious eye. They say people with money will always want to get to know the people whose businesses they invest in.

“An online dating service is not going to work in terms of closing the deal and getting the check to the entrepreneur,” said Len Batterson, chairman and chief executive officer, of Chicago-based Batterson Venture Partners.

The venture partners are 43 successful entrepreneurs who operate as an “investment club,” providing both money and management advice. In 1996, Batterson’s group invested about $3 million in three deals; an advanced materials firm, an executive search firm and an Internet company. They also raised another $1 million for operating capital.

“Angels are looking for ‘A’ people with ‘A’ ideas and compelling economics,” said Batterson. “We want to see products that are 50 percent faster, 50 percent cheaper or 50 percent smaller.”

His angels, who also want a 15 percent to 30 percent return on their money, provide management advice as well as cash to entrepreneurs.

“An angel investor is an entrepreneurial investor who has walked in your shoes,” said Batterson, who was one of the original backers of America Online.

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The following fields overflowed: CREDIT = Jane Applegate Los Angeles Times