Raising Capital the Online Way
June 12, 2006
Imagine Roger Nusbaum's surprise when he returned to his Prescott, Ariz. home to find several unsolicited messages from potential investors on his voice mail. Nusbaum, a portfolio manager at Your Source Financial in Arizona, received those calls because of his blog about exchange-traded funds (ETFs). He was even more surprised when those contacts and others led to an additional $4 million in assets.
Nusbaum is a frequent contributor to many online blogs. When Barron's magazine recently profiled David Jackson's network of finance blogs (including SeekingAlpha.com, ETFinvestor.com and various industry-specific blogs), it mentioned Nusbaum's contributions about ETFs. That directly resulted in phone calls from some highly qualified investors. "My blog really has evolved into a good source of leads, which is more than I expected when I first started," Nusbaum said in an e-mail to us.
Success stories like Nusbaum's are increasingly common as blogs and other online networks become a more and more important part of the business world. Using this technology, professional money managers are finding sources of capital from the far corners of the Web.
Of course, many investment vehicles are open only to accredited investors, and managers of these vehicles should not be perceived as advertising to unaccredited investors. However, there is nothing wrong with opining on market-related issues, increasing your own visibility and investability in the process. Although hedge funds have traditionally been quiet and low-profile in their fundraising process, as this asset class becomes mainstream, hedge funds are adopting more mass-market capital-raising techniques.
With new blogs appearing at the rate of 30,000 a day, and the increasing popularity of social network sites such as LinkedIn and openBC, more and more business relationships are being started, and deals being closed, online. Even money managers, members of an industry known for its discretion, have been taking advantage of this new technology. LinkedIn reports numerous success stories from companies using the tool for due diligence.
Blogging (the activity of updating a blog) can significantly increase your professional profile. Greater Internet visibility results in meeting more people, some of them potential investors. Another major advantage is that blogging provides a digital trail, establishing professional competence. Money managers who document their opinions of the capital markets and individual companies have made their opinions public knowledge. A potential investor is able to evaluate the ideas put forth and can determine his confidence in the money manager.
Online to Mainstream
Consider the Aug. 17, 2005 edition of "Power Lunch" on CNBC. Jeff Matthews, a hedge fund manager at RAM Partners, and Patrick Byrne, the CEO of Overstock.com, faced off over Matthews' criticism of Overstock.com on his blog. Byrne has more recently been in the media complaining that certain segments of the media, specifically the online community, were conspiring to devalue Overstock. This example shows the perceived (and actual) power of the Internet in the investment community. Matthews, by writing his opinions in a blog, is able to discuss business strategy, news and company behavior without needing one of the few scarce speaking platforms in the mainstream news media. Matthews said in an e-mail, "I view my job as being to bring interesting facts to light, positive or negative, in order to generate intelligent discussion and feedback that might be useful to investors as they look for ways to make money." His plan is working; his blog has become popular in the online investment community.
