WO2001026063A2

WO2001026063A2 - Raising private capital using an interactive computer system

Info

Publication number: WO2001026063A2
Application number: PCT/US2000/009909
Authority: WO
Inventors: Alan Freedman; James Cohan; Ray Schnitzler; Sean English
Original assignee: ROUND1 PRIVATE CAPITAL MARKETPLACE Inc
Current assignee: ROUND1 PRIVATE CAPITAL MARKETPLACE Inc
Priority date: 1999-10-01
Filing date: 2000-04-14
Publication date: 2001-04-12
Anticipated expiration: 2002-04-01
Also published as: AU4457600A; DE10017848A1; WO2001026063A8

Abstract

A technique for raising private capital includes receiving an electronic registration via a site in an interactive computer network where the registration represents an offering to sell shares of a private equity security. Electronic bids with respect to the offering of shares of the private equity security are provided to the network by entering information via the network site. Allocations of shares of the security are determined automatically in the network based on the electronic bids. The bidding process can include receiving pre-money valuation bids from prospective bidders and selecting a lead investor based on the pre-money valuations. Terms of the private equity security offering can be established based on a pre-money valuation bid submitted by the lead investor. An on-line fill-in bidding stage can be performed after a lead investor is selected. The on-line fill-in bidding stage can include performing a Dutch auction. Bids can be submitted via the network site.

Description

RAISING PRIVATE CAPITAL USING AN INTERACTIVE COMPUTER

SYSTEM

BACKGROUND

The invention relates to raising private capital using an interactive computer system.

The private equity market currently is a relatively closed, non-liquid and inefficient market. In the venture capital market, for example, many of the more attractive deals are funded by a relatively small number of tier one venture capitalists. Such firms typically receive preferred access to private equity offerings, and many qualified investors may be excluded from the capital raising process. Therefore, companies seeking to raise capital may receive valuations and terms that do not reflect overall market demand.

For venture stage companies, raising private equity is a time consuming and manual process that typically requires several months to complete. The process is made more difficult because of the lack of uniformity, the lack of standardization and limited access to a large number of potential investors.

Investors currently have few alternatives for achieving liquidity in privately held securities. Negotiating a price with the company, with existing investors or with a third party often results in a deep discount paid to the investor because the number of bidders is small. Waiting for the company to complete an initial public offering (IPO) may not be a realistic alternative because only a small percentage of venture- backed companies result in IPOs in a given year. Furthermore, existing alternatives generally do not give the investor control over the timing of the liquidity event.

Additionally, information on the private equity market currently is fragmented and incomplete.

SUMMARY

In general, according to one aspect, a method of raising private capital includes receiving an electronic registration through a site in an interactive computer network where the registration represents an offering to sell shares of a private equity security. Electronic bids with respect to the offering of shares of the private equity security are received through the network site. Allocations of shares of the security are determined based on the electronic bids.

One or more of the following features are present in some implementations. The offering can be posted on the network site. Prior to giving a prospective bidder access to confidential information relating to the offering, an electronic registration for the prospective bidder may be required to be submitted and accepted. A determination can be made whether to provide a prospective bidder with on-line access to confidential information relating to the offering. The bidding process can include receiving pre-money valuation bids from prospective bidders through the network site and selecting a lead investor based on the pre-money valuations. Terms of the private equity security offering can be established based on a pre-money valuation bid submitted by the lead investor. An on-line fill-in bidding stage can be performed after a lead investor is selected. The on-line fill-in bidding stage can include performing a Dutch auction and bids can be submitted through the network site.

In some implementations, a profile of individual investor preferences is. automatically updated based on an investor's on-line activity on the network site. An electronic mail message selectively can be provided to the investor, where selection of the message depends upon the updated profile.

Furthermore, electronic auctions can be provided via the network site for secondary trading of shares in private equity securities. In some applications, streaming media that relates to information pertaining to a private capital marketplace can be viewed by accessing the network site. The streaming media can include, for example, video and/or text and may include an analysis of investment opportunities relating to private equity securities offerings received in the network site. In some implementations, information relating to specific security offerings can be accessed only by members, whereas at least some of the streaming media can be accessed by members and non-members. According to another aspect, an interactive computer network for raising private capital includes one or more servers and a network site accessible via user stations. The server(s) is configured to process an electronic registration that is provided to the network by entering information via the network site where the registration represents an offering to sell shares in a private equity security. The server(s) also is configured to post the offering on the network site if the registration is accepted. The network site can be implemented, for example, as an Internet website.

In yet another aspect, an article includes a computer-readable medium that stores computer-executable instructions for causing a computer system to perform various of the functions described above and described in greater detail below.

Some implementations include one or more of the following advantages. The interactive network can provide a highly efficient, standardized marketplace for private equity. For example, transactions in private equity securities can be facilitated. The network can help capital-raising companies gain greater success in directly targeting investors and can facilitate the trading of private securities. Furthermore, the network can improve the quality and access to information about the private equity market.

Other features and advantages will be readily apparent from the following description, the accompanying drawings, and the claims.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 illustrates an exemplary interactive computer network.

FIG. 2 shows a computer network supporting service on the World Wide Web. FIG. 3 shows an implementation of an interactive Web site.

FIG. 4 is a flow chart of a method of making an on-line offering to sell shares of a private equity security.

FIG. 5 illustrates an on-line registration application.

FIG. 6 illustrates an on-line summary of the private equity security offering. FIG. 7 is an on-line schedule for establishing meetings between potential investors and company representatives.

FIG. 8 shows an enrollment process for becoming a member with access to information on the Web site.

FIG. 9 is a flow chart showing a method of raising private capital using the on- line interactive computer network.

FIG. 10 shows an exemplary Web page for entering a lead bid.

FIG. 11 shows an exemplary Web page that posts bids received during the lead bidding process.

FIG. 12 illustrates an exemplary Web page showing bids received during a fill in bidding stage.

FIG. 13 shows a final allocation of shares from an initial offering of the private equity security.

FIG. 14 is a flow chart showing a method of initiating secondary trading of shares in a private equity security. FIG. 15 illustrates an on-line form for trading shares in a private equity security.

FIG. 16 shows an exemplary Web page listing secondary securities offered for sale.

FIG. 17 shows an on-line information center that provides a real-time streaming video broadcast relating to the private capital marketplace.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

As shown in FIG. 1, an exemplary interactive computer network 10, such as the Internet, includes interconnected computers that support communications among different types of users. Such users can include, for example, businesses, individuals, universities and financial institutions, among others. The network 10 can support various types of communication links, such as telephone 12, paging 14, cellular 16 and cable television 18 links. Terminal equipment used with the network 10 can include, for example, local area networks (LANs) 20, personal computers 22 with modems 24, pocket organizers 26, personal data assistants (PDAs) 28, and content servers 29 of multi-media, audio, video and other information. Communications over the network 10 can be carried out through different layers such as application layers, transport layers, Internet layers and physical layers. An application layer represents the various tools and information services that are used to access information over the Internet. Such tools can include, for example, World Wide Web (the Web) service to allow access to Hyper Text Transfer Protocol (HTTP) documents. FIG. 2 shows an example of an Internet network 30 supporting Web service. A Web browser 32 is connected to a Web server 34 through the network 30. The server 34 can be implemented as a computer and provides content, such as images, text, video, sound and Java applets, to users. An Internet Service Provider (ISP) 36 links the browser 32 to the network 30, and an ISP 38 links the server 34 to the network. Regional service providers 38, 39 and other intermediaries route traffic between the ISPs 36, 37.

FIG. 3 illustrates an implementation of a secure, interactive Web site 40 for conducting primary and secondary private equity transactions, tracking and centralizing private equity market data, and offering news and information relating to industries active in the capital-raising process. The Web site 40 allows capital-raising companies to be brought together with accredited investors who can perform due diligence activities over the network 10 and make investments in a capital-raising company's primary securities using the network 10. Various features of the Web site 40 can be implemented in hardware, software, or a combination of hardware and software. For example, some aspects of the system can be implemented in computer programs executing on programmable computers. Each program can be implemented in a high level procedural or object- oriented programming language to communicate with a computer system. Furthermore, each such computer program can be stored on a storage medium, such as read-only-memory (ROM) readable by a general or special purpose programmable computer, for configuring and operating the computer when the storage medium is read by the computer to perform the functions described below.

As shown in FIG. 3, in one implementation the Web site 40 has several sub- systems including a transaction server 42, a content server 44, a profile manager 46 and a dynamic content server 48. The transaction server 42 handles the process associated with operating transactions between buyers and sellers of primary and secondary securities. The process includes activities relating to the registration of companies and investors, due diligence, bidding on securities and closing a transaction. The content server 44 is responsible for providing market commentary and analysis to educate investors about the market and the companies offering securities through the Web site 40. The content server 44 can provide streaming video files as well as numerical reports. The profile manager 46 obtains and stores investor and company information. Such information can include demographic and other data that allows the system to track the preferences of its members dynamically and determine the content that is best suited for its members. The dynamic content server 48 obtains data about buyers, sellers and market trends and delivers intelligent information about the private securities markets. The server 48 obtains data from the profile manager 46 and the transaction server 42, and provides results to the content server 44. Referring to FIG. 4, a company that wishes to raise capital for private securities accesses 100 the Web site 40 via the network 10 to register its private securities offering. Registration includes completing and submitting 102 an on-line application, such as the application 50 shown in FIG. 5. The application 50 can be designed using a standardized format to facilitate the screening and review process. In addition to information about the company, the application can include an indication of the type of offering and the size of the offering. Pull-down menus can be provided on a Web page in which the application form appears to facilitate completion of the application. Once an application is submitted, a management team can review and evaluate the application. If the application is approved, the applicant can be notified of the approval by sending 104, for example, an electronic mail message to the applicant. An account number and password are established for the applicant enabling it to participate in various on-line services offered through the network 10.

Following the registration process, a summary is prepared describing the new member's private securities offering. As shown in FIG. 6, the information can be summarized and placed in a standardized format and digitized prior to posting it on a page 52 on the Web site 40 that lists and briefly describes companies registered on the Web site 40. The summary 54 includes limited information about the offering and/or the company that potential investors can access through the Web site 40. The summary 54 may include information about the company's financial performance and executive summaries. Other information that may be provided in the summary 54 include investor presentations in video and/or text format, press releases, news articles, financial reports, as well as analyst and industry reports.

Due diligence information relating to the offering also can be made available 108 on the Web site 40 and can be presented in a standardized format. The due diligence information, which can include, for example, copies of documents submitted pursuant to government regulations, historical and projected financial information, product data, customer data, material contracts and corporate documents,^' can be made downloaded by potential investors who may wish to manipulate the information using their own financial models. As shown in FIG. 7, the Web site 40 includes a Web page 56 with a schedule that allows potential investors to sign up and meet with individuals that represent the company that registered the securities offering.

Preferably only members are permitted to have on-line access to information stored on the Web site 40. All members are permitted at least limited access to information, such as the summary 54 (FIG. 6), relating to the private securities offerings. Approved members are permitted access to other on-line confidential information, such as the due diligence materials corresponding to a particular offering. Approved members also can schedule meetings with representatives of a registered company through the Web page 56 (FIG. 7). In general, members can influence the valuation of the offering through a bidding process as described below.

As shown in FIG. 8, the enrollment process for becoming a member includes accessing 110 the Web site 40 and completing and submitting 112 an on-line application. The applicant is prompted to enter personal information, including investment preferences with respect to prefened industries, minimum revenue, investment size, etc. The information submitted in the membership application is used by the profile manager 46 to establish 114 an initial profile for each member. The profile manager 46 updates 116 each member's profile in real-time based on the member's activity on the Web site 40. For example, each time the member views a Web page, downloads information, makes a company inquiry, or completes a transaction, the member's profile can be updated. Referring to FIG. 9, when a new opportunity for investing in a private equity securities offering arises, members are automatically alerted 120 of the new opportunity. The members can be notified of the investment opportunity, for example, through an electronic mail message. In some cases, only members having a particular profile may be notified of the investment opportunity. Members who are interested in the offering can access 122 the Web site 40 and browse 124 the limited information relating to the offering available on the Web page 52. Members who have viewed the information on the Web page 52 can request 126 additional information about the offering. The profile of each member that requested the additional information is provided 128 to the company offering the securities. The member profiles can be sent automatically to the company, for example, via electronic mail. The company making the offering is, therefore, provided an opportunity to pre- • screen potential investors to decide which members should be granted access to more sensitive information relating to the company and the securities offering. If the company grants approval, the member is notified 130 of the approval, for example, by electronic mail. The approved member is provided with a password that can be used to access and browse 132 due diligence and other sensitive information about the securities offering stored on the Web site 40.

Upon completion of the due diligence stage, a two-stage on-line bidding process begins 134. The first stage is a lead bidding process. During the lead bidding process, previously-approved institutional or other investors enter pre-money valuation bids and accompanying preferred shareholder terms via the Web site 40 as shown, for example, in FIG. 10. Each investor can select from a list of standard shareholder terms, such as dilution terms, participating prefened, co-sale agreement, registration rights, board seats and revenue milestone seats. During the lead bidding ' process, the investors are not given access to one another's bids. At the end of the lead bidding process, the company that made the offering can review the bids through the Web site 40 and select a lead investor from among the bids posted on the Web site as shown, for example, in FIG. 11. Once the lead investor has been selected, the terms and price of the offering are established. The fund raising process progresses to the second, or fill-in bidding, stage. The fill-in bidding stage allows a fair market value to be established through a

Dutch auction in which the accepted bid price is the lowest price required to fill the round. Bidding during the second stage also is conducted through the Web site 40. FIG. 12 illustrates an exemplary fill in bidding in progress for a company raising $10 million of Series B Preferred Offering. The company has selected a lead investor with a price of $6.46 per share, which corresponds to a $51 million pre-money valuation based on 7.9 million shares outstanding. The company is taking two board seats and is requiring a co-sale agreement and registration rights. The lead investor is investing $2 million leaving $8 million to complete the round.

As shown in FIG. 12, bid entries 18, 42, 27, 25, 24 and 23 are the highest bids that would fill the $10 million offering. Those bids total $19 million, in other words, $9 million above the authorized amount. Bidder numbers 42, 27, 25, 24 and 23 trigger an over-subscription at a price of $7.47 per share. As a result, the parties submitting those bids receive a pro-rata share of the remaining allocation of shares not filled by the lead investor and the higher bids. In particular, the lead investor and bidder number 18 receive their full allocations. The remaining bidders at $7.47 per share fill the round on a pro-rata basis. The bidding continues until the round is closed which, in the illustrated example, occurred at 4:00 p.m. on June 1, 1999. Assuming that the bid period has expired and that the allocations remain unchanged, the Series B valuation would be set at $7.47 per share with two board seats occupied by the lead investor and a co-sale agreement with registration rights applying for all investors.

The lead investor can be given warrants for its efforts in conducting primary due diligence, setting the terms, and taking an active role in the company. The lead investor receives warrants that result in the lead investor having the same percentage ownership as if the round were set at its accepted bid price of $6.46 per share. In the illustrated example, the lead investor would receive 33,584 warrants at a strike price of $7.47 per share. To ensure that the other investors do not underbid the lead investor, the fill in bidding process starts with a minimum price equal to the lead investor's price. Once the round is closed, final allocations are filled 136 based upon the agreed terms and can be posted on the Web site 40, for example, as shown in FIG. 13. The financing then is closed 138.

Throughout the bidding process, notifications by electronic mail can be sent automatically to prospective investors reminding them of the impending completion of the round and informing them of the resulting allocations.

The Web site 40 also allows individuals to trade secondary private equity securities over the network 10. To sell one or more shares in a private equity security, the member who holds the shares accesses 150 the Web site 40 and completes and submits 152 an on-line form 60 (FIG. 15) that summarizes specific information about the securities offered for sale. As indicated in FIG. 14, an investor who wishes to sell a privately held security may be required to offer the shares to the company and to existing shareholders before offering them to a third party. The seller also may be required to set a minimum bid price agreed to by the company and existing shareholders. Material restrictions also may be listed on the form 60. Such restrictions can include, for example, the lock up period that a new buyer must hold the purchased securities before selling them following an initial public offering (IPO). As shown in FIG. 16, a member who is a prospective buyer of secondary securities can access a page 62 on the Web site 40 and choose from a list 64 of securities offered for sale. In general, a prospective buyer can bid on all or some of the securities offered at the posted offer price. If a buyer bids the posted offer price, the transaction is completed. If a bid price is below the craxent lowest offer price, then the bid is posted on a list 66 on the Web page 62. A trading history 68 of recently completed transactions for a company's securities can be posted on the Web page 62 so that investors can better assess the fair market value for the securities.

The servers 42, 44, 48 and profile manager 46 (FIG. 3) coordinate matching bids and offers and execute the auction trades. The system completes the transaction by crediting and debiting investment accounts of the buyer and seller. The system can automatically update its databases of security holders following completion of a transaction.

Referring to FIG. 17, individuals can access an information center 70 that provides a real-time streaming video broadcast whose content relates to the private capital marketplace via the Web site 40. The streaming video can relate, for example, to corporate presentations, investment firms, industry trends, commentary, comparable analysis, industry analysis and the like. In some implementations, the online information center 70 is accessible to all viewers, both members and non- members. Other implementations are within the scope of the following claims.

Claims

What is claimed is:

1. A method of raising private capital comprising: receiving an electronic registration via a site in an interactive computer network, wherein the registration represents an offering to sell shares of a private equity security; receiving electronic bids in the network with respect to the offering of shares of the private equity security, wherein the bids are provided to the network by entering information via the network site; and determining allocations of shares of the security based on the electronic bids.

2. The method of claim 1 including receiving pre-money valuation bids from prospective bidders through the network site.

3. The method of claim 2 including selecting a lead investor based on the pre-money valuations.

4. The method of claim 3 wherein terms of the private equity security offering are established based on a pre-money valuation bid submitted by the lead investor.

5. The method of claim 3 further including performing an on-line fill-in bidding process after a lead investor is selected.

6. The method of claim 5 wherein performing an on-line fill-in bidding process includes performing a Dutch auction, wherein bids are submitted via the network site.

7. The method of claim 1 including posting the offering on the network site.

8. The method of claim 1 including accepting an electronic registration for a prospective bidder prior to giving the prospective bidder access to confidential information relating to the offering.

9. The method of claim 1 including determining whether to provide a prospective bidder with on-line access to confidential information relating to the offering.

10. The method of claim 1 further including automatically updating a profile of individual investor preferences based on an investor's on-line activity on the network site.

11. The method of claim 10 further including selectively providing an electronic mail message to the investor, wherein selection of the message depends upon the updated profile.

12. The method of claim 1 further including providing electronic auctions via the network site for trading secondary shares of private equity securities.

13. The method of claim 1 further including providing streaming media that can be viewed by accessing the network site, wherein the streaming media relates to information pertaining to a private capital marketplace.

14. The method of claim 13 wherein the streaming media includes video and text.

15. The method of claim 13 wherein the streaming media includes analysis of investment opportunities relating to private equity securities offerings received in the network site.

16. The method of claim 13 wherein information relating to specific security offerings can be accessed only by members, and wherein at least some of the streaming media can be accessed by members and non-members.

17. The method of claim 1 wherein the network site is an Internet website.

18. An interactive computer network for raising private capital comprising: at least one server; a network site accessible via user stations; wherein the at least one server is configured to: process an electronic registration received in the network site, wherein the registration represents an offering to sell shares in a private equity security; and post the offering on the network site if the registration is accepted.

19. The interactive computer network of claim 18 wherein the at least one server is further configured to: process electronic bids with respect to the private equity security offering, wherein the bids are received through the network site; and post the bids on the network site.

20. The interactive computer network of claim 19 wherein the at least one server is configured to receive and process pre-money valuation bids from prospective bidders.

21. The interactive computer network of claim 20 wherein the at least one server is configured to receive and process bids during a fill-in bidding stage once a lead investor has been selected and terms of the private equity offering have been established based on the pre-money valuations.

22. The interactive computer network of claim 21 wherein the at least one server is configured to process the bids received during the fill-in bidding stage according to a Dutch auction technique.

23. The interactive computer network of claim 19 wherein the at least one server is configured to permit access to the offering and bids posted on the network site only to pre-approved parties.

24. The interactive computer network of claim 19 wherein the at least one server is further configured to provide streaming media to the network site, wherein the streaming media relates to information about a private capital marketplace, and wherein the streaming media can be viewed by accessing the network site.

25. The interactive computer network of claim 24 wherein information relating to specific security offerings can be accessed only by members, and wherein at least some of the sfreaming media can be accessed by members and non-members.

26. The interactive computer network of claim 18 wherein the network site, is an Internet website.

27. An article comprising a computer-readable medium which stores computer-executable instructions for causing a computer system to: process an electronic registration received through a computer network site, wherein the registration represents an offering to sell shares in a private equity security; and post the offering on the network site if the registration is accepted.

28. The article of claim 27 wherein the computer-readable medium further stores computer-executable instructions for causing the computer system to: process electronic bids with respect to the private equity security offering, wherein the bids are received by the computer system via the network site; and post the bids on the network site.

29. The article of claim 28 wherein the computer-readable medium ftirther stores computer-executable instructions for causing the computer system to receive and process pre-money valuation bids from prospective bidders.

30. The article of claim 29 wherein the computer-readable medium further stores computer-executable instructions for causing the computer system to receive and process bids during a fill-in bidding stage once a lead investor has been selected and terms of the private equity offering have been established based on the pre-money valuations.

31. The article of claim 30 wherein the computer-readable medium further stores computer-executable instructions for causing the computer system to process the bids received during the fill-in bidding stage according to a Dutch auction technique.