Measuring a startup’s success

FAYETTEVILLE — A small, Internet-based firm on the town square in Fayetteville has passed a milestone of sorts.

Through the patented systems the company has developed for “crowd-sourcing” investment dollars from mostly small-scale, private investors, the company hasraised more than $104 million in capital for startup firms.

Judd Hollas, chief executive officer of EquityNet, the company he founded in 2005, said he and his team evaluated numerous business models, taking bits and pieces from each to make their model unique. Lack of capital, he said, is by far the leading cause of business failures, especially among startups.

Hollas and his team developed a standardized business analysis report so that potential investors can compare a new company’s business plans against other firms to evaluate the startup’s chances for success.

“If you empower the investors, that turns around and helps the entrepreneur.It’s all about the capital,” he said.

The U.S. Jobs Act that became law April 5 with President Barack Obama’s signature helped Hollas’ business by loosening the restrictions on private equity offerings, although the rule-making process to implement the law is still under way.

“If it’s simple and easy to understand, it will be a good thing,” he said.

Jeff Amerine, technology licensing officer for the University of Arkansas at Fayetteville, said his office has used EquityNet for commercialization and market assessment for Innovate Arkansas clients. Innovate Arkansas is a program of the Arkansas Economic Development Commission and Winrock International to create jobs by promoting technology-based businesses.

“They have insight, third party assessments,” he said of EquityNet.

The company’s screening process, Amerine said, starts in the early stages and is standardized.

One underlying assumption of the jobs act, Amerine said, is that informed investors with a net worth of less than $1 million and annual income of less than $200,000 should be able to invest in companies that are not publicly traded.

That assumption stems, in broad measure, from the fact that the vast majority of all net new job creation comes from small companies.

Many investors, Amerine said, view the private equity market as an attractive alternative to computer-driven trading in the major stock markets and to real estate investments.

“It gives informed investors an opportunity to invest in something that’s nearby,” he said.

Amerine said he hopes the rule-making process doesn’t result in “a new big pile of rules that will turn off investors.”

Jim Smith, a partner with Smith Hurst PLC law firm in Fayetteville that specializes in financial issues, said EquityNet has been highlighted in numerous publications as a crowd-funding program. His firm has no relationship with the company, he said, but he’s aware of its software program than analyzes privately held businesses.

“It helps validate or invalidate a particular company,” he said.

The jobs act, Smith said, makes it potentially easier to crowd-fund a lot of small investments, and a part of that is confirming whether an individual is a valid investor.

“EquityNet appears to be geared up to be a significant player in crowd-funding,” he said.

Steve Stanley, vice president-commercialization at the Arkansas Science and Technology Authority, said the agency has an investment in EquityNet and uses the company’s product to evaluate other firms.

EquityNet, he said, provides objective analysis of companies seeking investments from the agency, comparing those firms with peer groups and evaluating strengths and weaknesses.

“We like the product, the results. It’s continued to improve over the years,” he said.

Tom Dalton, director of Innovate Arkansas, said EquityNet brought with it a strong background evaluating technology-based startup firms.

“They’re very strong in the area of market analysis, and that’s what many of our clients need,” he said.

If you have a tip, call Jack Weatherly at (501) 378-3518 or e-mail him at [email protected]