NEW YORK-With the creation of San Francisco-based OffRoad Capital Corp., the realm of angels, those wealthy people who invest patient capital in promising start-ups, has moved into cyberspace.
OffRoad describes itself as a “new kind of financial services company using the Internet to create the first private capital marketplace where a community of high net-worth individuals can provide financing in the $1 million to $10 million range to established private growth companies.”
The new company, which has a licensed broker-dealer subsidiary, said it has assembled and is expanding its group of accredited investors, people with at least $1 million in assets. High net-worth people comprise about 5 percent of American households and 66 percent of the nation’s wealth, according to Securities and Exchange Commission data cited by Off-Road Capital.
Furthermore, SEC and Internal Revenue Service figures indicate the approximately 400,000 small businesses in the United States employ 35 million people and have $2 trillion in book-value assets, Off-Road said. However, only 2 percent of their financing needs are met by the traditional sources of private equity-venture capitalists and investment banks. Venture capitalists and other institutional investors seldom invest less than $10 million in the later-stage companies targeted by OffRoad, OffRoad said.
“The private capital markets have effectively been closed to most individual investors, even those with relatively high net worth. On the other side are many solid, private, growth-oriented companies with identifiable exit strategies that have not had access to creative or sophisticated financing options,” said Stephen Pelletier, founder, chairman, chief executive officer and president of OffRoad.
“Our research has found that these two groups are frustrated by limited access to capital on the one side and to deals on the other. Individuals with capital to invest most often don’t hear about appropriate investment opportunities or only hear about deals in their geographic region. And companies needing capital go begging.”
In business, time also is money. To expedite the typically slow process of raising angel capital, Off-Road will use its broker-dealer subsidiary to present prescreened and structured investment opportunities to its participating investors.
Today, most such deals take about three months to get financed, OffRoad said. It plans to compress that time period into about three weeks.
The deals will be sold based on market pricing, calculated by the degree of interest expressed by investors who have read OffRoad’s assessment and then perform their own due diligence on companies seeking financing.
“The Internet’s strongest contribution begins when the companies are introduced to investors,” Pelletier said.
“Our broker-dealer is a virtual community brokerage in which interested, qualified investors can interact not only with the issuing company principals, but just as importantly, with each other … (in a) private venue … we are calling an `OffRoad Show.’ “
In addition to facilitating communications, OffRoad intends to bring greater standardization and order to the private capital marketplace. Steven M.H. Wallman, a former SEC commissioner, is a board member of OffRoad. Susan Woodward, formerly chief economist for the SEC, is OffRoad’s chief economist and executive vice president of research.
“Their combined depth of experience … will continue to be invaluable in finding effective solutions [to] a wide range of issues, including the institution and implementation of reporting standards,” Pelletier said.
A company receiving financing through OffRoad must provide continuous, standardized financial information online to investors for the life of the investment. It also must hold quarterly online discussions with investors about these reports.
“Small business is where many ideas are incubated, and it is time for the financial markets to incubate new methods to continue to fuel this important part of our economy,” Woodward said.
“Any innovation that could lower the cost of access to funding for the small business sector will be quickly seized upon, as there is plenty of pressure for more and cheaper financing for this sector.”
Further information about the new financial services company can be obtained from its Web site at: www.offroadcapital.com
