Best of the ISP-Lists

Detroit Blues

Members of the ISP-Investor list discuss the encroachment of the affiliate ISP. How can a local business compete against Ford Motor company if Ford is charging $5 per month for Internet access?

[April 25, 2001]

On the ISP-Investor list in April, DS shared a dilemma:

"I am the sole proprietor of a small ISP near Detroit. I had over a thousand customers until Ford Motor Company offered free computers to their employees on the condition that they buy dialup access for $5 per month. So I am now expanding out of Ford territory. To do that, though, I need to get some more capital. How do I do that?"

A number of respondents offered advice on selling shares in your company:

[JH suggested] "What you're looking for is a Regulation D filing. Reg D is a simple filing that allows you to sell your private shares. There are stipulations on how you can market, how many individual investors you can have, and the total amount of capital you can raise.

There are also state regulations to consider. You're best off if you have some friends and relatives that want to own shares to start with. Check with your attorney and CPA and see what they think."

[CU explained] "Regulation D only comes into play if you are trying to raise up to $1 million from strangers. They need to have a certain net worth or income level to qualify: this is to protect little old ladies from bad people selling shell companies. You do have to look at how much of the company you want to give up.

Suppose your company is worth $200k and you want to raise $100k. To be fair, you would have to give away 33% of the company, since the $100k investment would then constitute 33% of the total value of the company (a $200k company with an extra $100k in the bank is worth $300k).

That said, raising money is difficult in this climate. These days, you'll have a very hard time raising it from anyone other than family, friends, or rich clients who really like you a lot."

[JN added] "Before you spend a lot of money to raise a few hundred to a few million, you should learn the issues surrounding what is and what is not regulated sale of stock. Some selling of stock requires filings and some does not. Read a little, and then hire a pro. If you are not dealing with enough money to hire a pro, you are not going to be in a situation that justifies those capitalization methods."

AK suggested looking into ways of retaining the local customers instead:

"Ask yourself, what other services you can offer these subscribers that they currently do not have? Think about members-only services like calendars, web-based email, email-to-pager, etc. You need to think outside the box: you may be too far into the forest to see the trees."

Others recounted their own stories of how they got the necessary cash:

[LD recalled] "We got money from a bank, with the help of the SBA."

[CU offered] "Try speaking to your accountant or lawyer. They may have a strong client relationship with someone who may be interested in investing in a profitable company. A good, casual and easy place to start."

[TH noted] "There are several levels of equity investing: startup money, initial expansion money, and 'real' money. In general, startup money comes from your own pocket or from friends and family. Initial expansion money generally comes from an SBA loan. To get real money, especially right now (compared to two years ago), you better have a very good management team and a decent business plan."

— End