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Company website: offroadcapital.com
Firm opens doors to deals online - offerings only available to accredited investors! Must have net worth over $1,000,000. Minimum investment is $25,000.
By Bill Meyers, USA TODAY
Steve Pelletier thought he had created the next eBay or Amazon.com. So he pitched the concept to his colleagues at Benchmark Capital, the
red-hot Silicon Valley venture capital firm backed by high-tech titans such as Michael Dell, Scott McNealy and Craig McCaw.
Benchmark, which has invested more than $250 million in digital enterprises since 1995, was lukewarm to Pelletier's idea.
Undeterred, Pelletier left Benchmark and went on to launch OffRoad Capital -- the first Web site that allows affluent individuals to invest electronically in established private growth companies seeking financing.
OffRoad, says Pelletier, "was too close to home for Benchmark. I saw a lot of opportunity, but it's not clear how much they saw."
More than 90 individual investors saw plenty. And, confounding the powerful pros at Benchmark, they anted up more than $7 million for
OffRoad, which officially goes on line next month.
"It's a magnificent concept," says Dan Brumbaugh, a senior finance fellow at the Milken Institute and one of OffRoad's first backers. "That was clear to me after hearing the first 25 words."
For interested investors, the concept is simple. After going to OffRoad's Web site (www.offroadcapital.com), all they have to do is click on an icon for an application form. To become an OffRoad member, a person must be 21 or older, have $1 million in household net worth and understand the Securities and Exchange Commission rules.
Investors must also pay a $1,000 initiation fee (waived until June 15) and undergo credit and background checks before reviewing the deals OffRoad will feature on line monthly. The minimum investment in a deal will be $25,000.
Based in San Francisco, OffRoad is known as a butterfly company in Silicon Valley because it carries two groups of people who want to do business with each other on its wings.
The 5.7 million American households with $1 million or more in assets account for about two-thirds of the nation's wealth. Yet these
high-net-worth players rarely get a chance to invest in private companies that might soon go public.
"Unless you hear about this kind of transaction at the country club, you almost never get to participate," says Pelletier, 45.
"When it comes to money, high-net-worth investors are pretty
sophisticated and self-directed. They're saying, 'Give us the opportunities, show us the deals.' "
Capital chasm
For their part, the 400,000 private companies in the USA with 10 or more
employees account for $2 trillion in book assets. Yet when they're looking
to raise between $1 million and $10 million, these firms often plunge into a
capital chasm and are forced to scrounge together the needed funds
themselves.
That's because most venture capitalists and investment banks overlook
established companies looking to raise $1 million to $15 million, and
outside individuals traditionally invest less than $1 million.
OffRoad, says Dan Burke of Gomez Advisors, a research firm specializing
in electronic commerce for consumers, has the potential to be "a
double-hot situation with so many private companies seeking money and
the enormous demand among high-net-worth investors."
Still, Pelletier and his colleagues at OffRoad will face competition. W.R.
Hambrecht, for example, is making initial public offerings available on line.
And Garage.com has raised money for start-up companies.
Pelletier is unfazed. And he points out that OffRoad's companies won't be
in the embryonic stage - they'll have customers, revenues, profits and plans
to go public.
"We're not going to ask people to invest money in an untested idea
created by three guys with 10 slides," says OffRoad's founder. "With our
companies, there will be real tires you can kick."
To kick the tires and examine OffRoad's deals, investors will be able to
chat on line with each cash-hungry company and ask questions before they
buy in. OffRoad subscribers will also be able to discuss the transactions
with each other on the Web. And OffRoad's private companies will be
required to disclose their quarterly results.
It's still unclear whether the digital-deal concept will appeal to
high-net-worth investors.
"It's not as simple as posting a plan on the Net and then waiting for people
to send you the check," says Guy Kawasaki, founder of Garage.com.
"Initial interest is piqued by e-mail and Web sites, but it often comes down
to face-to-face meetings before they invest."
After helping Intuit grow from $44 million to $600 million between 1991
and 1996, Pelletier knows a lot about investor behavior.
"Steve sees the trends early," says Bill Campbell, chairman of the board at
Intuit. "He's a technology person who really understands the needs of
consumers."
The entrepreneurial bug
A Harvard philosophy major, Pelletier learned the high-tech side of the
business at Kurzweil Computer Products, where he helped create a
reading machine for the blind in the late 1970s. Then he moved to Interleaf
in the early 1980s and developed desktop publishing products.
Pelletier's advanced education in consumer marketing took root at Intuit
when he worked with Scott Cook, the company's co-founder, a former
Procter & Gamble executive.
After Microsoft's failed acquisition of Intuit, Pelletier left the company and
took six months off to recharge before going to Benchmark.
While serving as entrepreneur-in-residence at the venture capital firm, he
sat in a conference room and listened as scores of start-ups made their
pitches for funding.
"It was an eye-opening experience for me," Pelletier says. "At first I
thought, 'Why would anybody start a business?' It's scary, and the failure
rate is high. Then I told myself, 'You can do this!' I guess I really got the
entrepreneurial bug."
Benchmark listened to his proposal for OffRoad but walked away.
"We passed initially for a couple of reasons," says Benchmark's Kevin
Harvey. "Primarily, we wanted a tighter focus on high-tech, later-stage
financings. ... I think it's too early to say that we won't work together
(including an investment this time)."
Radical business model
Pelletier persevered after other venture capital firms rejected his radical
new business model for private equity financing. After four months and
many meetings with investors, he had his funding in place.
Along the way, he picked up support from the Milken Institute, a nonprofit
economic think tank started and sponsored by Michael Milken, the
once-convicted former high-yield bond whiz. In the 1980s, Milken
recognized a similar capital crunch and financed the same type of
companies that OffRoad plans to back.
Three members of the Milken Institute are now on OffRoad's advisory
board. Steven Wallman, a former commissioner of the Securities and
Exchange Commission, is a member of OffRoad's board of directors. And
Susan Woodward, the former chief economist of the SEC, now serves in
the same role at OffRoad.
During the past month, OffRoad has analyzed more than 200 established
private companies that are seeking cyberfunding on its site. If selected,
these firms will pay OffRoad 3% to 9% of the capital raised for them.
Pelletier also reports that 1,000 high-net-worth investors have signed up
as OffRoad subscribers. His goal: 5,000 subscribers a year from now.
By then, Benchmark Capital and Silicon Valley will know if OffRoad can
hold its own in the technology fast lane. |
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