Monday, May 4, 2009

Alternate Funding Conference report

Todd Walters, Loanio
David Feldman, Feldman Weinstein & Smith
Lawrence Langs, iBusiness Partners
Dana Stetson, The Receivables Exchange

How do you access capital in these very trying times? VCs and Angels still have money but unless you are a successful serial entrepreneur or are prepared for ridiculously low valuations and high equity giveaways you may want to hold on to your business plan. Likewise, banks are tighter than Fort Knox, so unless you don't need their money and your credit is too good to be true, you might not want to bother. That seems leaves a few choices other than rich Uncle Joe, assuming he kept his money out of the market.

So, in this half-day conference we looked at some of the near and long-term solutions to this problem. If you are a company with receivables - purchase orders from creditworthy companies - then factoring is the shortest way to raise money. However, the rates are legally usurious - up to 38% APR. But with the internet, a company like The Receivables Exchange has opened your receivables up for auctioning and could theoretically lower that rate by half or more.

For those who need smaller loans - under $25,000 - then you could have used crowdfunding with sites like Loanio, Prosper etc. At least you could have until November of last year. That's when the SEC, probably reeling from its criticisms over poor market regulation and overlooking the Madoff's $50bn scam, stumbled upon the one true threat to the banking system - the online aggregators of people to people loans backed by little more than good credit scores. This $100 million industry worth say, one grommet on the "Tarp" was determined to be in the business of selling securities, so they shut them down pending new filings. The solution appears to be some legalistic maneuver of repackaging the loans as bonds and so on. Nevertheless this type of funding will in likelihood return and probably become increasingly available to small business.

One side benefit is that Loanio found that it could go public by self-registering, which is way to dramatically lower their underwriting cost. This leads us to the closing presentation by reverse merger guru David Feldman and iBusinessPartner Larry Langs who specializing in taking companies public through so-called sell deals - i.e. using a defunct public company shells to go public instantly (the stock exchange used this technique itself when it went public!). This is a great idea if you can attract investor money - especially when the market recovers. The only downside is the high cost of quarterly filings.

Then again with the internet, those costs could come down.
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