Historic changes in the tax and securities laws, combined with the latest advances in technology, permit the creation of a national marketplace for individual investors to find and invest in equity offerings by emerging, privately held small companies, according to a release from the U.S. Small Business Administration.
The Access to Capital Electronic Network, better known as ACE-Net
is that national marketplace, the SBA stated.
At some point, every small company needs equity financing, whether for start-up, capital improvements, product research or business expansion. While a few firms will receive financing from venture capital funds, a large majority is left exploring different financing avenues to access the capital needed for their businesses, SBA stated.
"It is critical that these increasingly diverse small businesses have adequate and fair access to equity capital," said SBA Administrator Aida Alvarez.
ACE-Net was designed by the Office of Advocacy, U.S. Small Business Administration to assist the estimated 350,000 small companies that are searching for investors. ACE-Net provides information to accredited investors on small, growing businesses nationwide. It provides entrepreneurs the opportunity to post their information on a secure Web site that accredited investors can visit anytime, anywhere.
ACE-Net works for entrepreneurs and for the investors who are looking for growth opportunities and can afford the risk inherent in private investments. The system is managed by a set of local network operators that are nonprofit, often university- or state-based entrepreneurial development centers.
These centers provide mentoring to new companies, usually in conjunction with local sponsors such as accounting and law firms, banks, institutional financial companies and other business leaders.
The network operators help guide entrepreneurs through the ACE-Net application process, and help investors learn how to use ACE-Net in the most productive way. Network operators also provide forums for investors to meet emerging companies.
Many entrepreneurs will tell you how difficult it is to find investors with the vision to commit their capital to growing small companies. That is why ACE-Net has sought to make certain that it provides investors and entrepreneurs the tools to make the listing and investment process more efficient, the SBA stated.
Angel investors in Washington, for instance, could at anytime, anywhere look at a business plan from an entrepreneur in Maine, for example, using their computer and modem. Which is what ACE-Net is all about. "ACE-Net has created a true national marketplace for entrepreneurs and investors," stated Jere Glover, chief counsel for advocacy at SBA.
For investors, ACE-Net provides an efficient method to view securities offerings of small, growing companies via the Internet. Accredited investors can find and invest in these ventures across the country for a maximum annual fee of $450.
ACE-Net makes it easier for investors to take advantage of the special tax treatments available for investments in small companies. It provides them with a portfolio of potential investment opportunities to permit them to roll over their investments in small companies and benefit from the zero capital gain tax rate in the 1997 tax reform legislation.
In addition, ACE-Net has also assisted in simplifying the filing process for investors and entrepreneurs in typical securities registrations. Through standardized disclosure forms developed by state securities regulators, ACE-Net listings are simplified. Model terms and conditions of investment are also provided for review by investors and entrepreneurs.
For angels to participate in ACE-Net, they must qualify as accredited investors according to the rules of the U.S. Securities and Exchange Commission. For most states this requires a net worth of $1 million minimum or an annual income of more than $200,000 ($300,000 for a married couple).
For entrepreneurs, ACE-Net is becoming the primary information source that links small companies with angel investors looking to invest between $250,000 and $5 million. The ACE-Net listings use federal Securities Regulation D, Rule 504, to raise up to $1 million, or Regulation A to raise up to $5 million, and must meet the state securities requirements.
A majority of the states have adopted new initiatives to permit companies raising less than $1 million on ACE-Net to use a short-form listing that significantly reduces the effort. This permits a company to file a simplified single listing along with its business plan.
Entrepreneurs and investors wishing to have access to the national marketplace through ACE-Net must first enroll in the system. An application may be downloaded from the ACE-Net Web site.
Once the form is completed, it must be mailed, along with the enrollment fee, to the nearest network operator. The local network operator will then issue a password providing access to the secure ACE-Net Web site.
In Missouri, the network operator is the Center for Emerging Technologies, 4041 Forest Park, St. Louis 63108.
Bill Simon is the contact person at the center, and he can be reached by phone at 314-615-6908, fax at 314-615-6901, and e-mail at firstname.lastname@example.org.
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