EquityNet Turns Corner, Names Hollas as CEO

More than ever, investors want an accurate assessment of their risks to weigh against potential reward. And, with credit at a trickle, many entrepreneurs are looking for alternatives to raise capital.

The principals in EquityNet LLC of Fayetteville began the groundwork for an online marketplace that will one day facilitate connections between investor and entrepreneur.

The mostly Web-based tools offered by the company perform the due diligence phase before a partnership, investment or acquisition is made with a target company. EquityNet’s software and services also help entrepreneurs get a good valuation on their company.

Just passing its two-year anniversary, EquityNet is moving into Phase II of its development with some changes that seem to have come right on cue: Judd Hollas, a co-founder and heretofore chief technology officer, has been appointed as EquityNet’s CEO, the company finished its first round of raising capital and is seeking investment for Round II.

Round I was more than $500,000, but Hollas wouldn’t say what the expectations are for the Round II offering.

EquityNet is recognized by the Arkansas Economic Development Commission and therefore investors in the company are eligible for the 33.3 percent tax credit.

Hollas and Ron Goforth, former CEO and current chairman, certainly aren’t happy about the economy, but they said market conditions may actually help their company grow as scrutiny and due diligence become more important to investors before they part with their money.

During 2008, EquityNet’s revenue increased 50 percent during each quarter. Hollas said expectations for 2009 are similar.

Going Forth

In 2006, there were 58 venture-backed initial public offerings nationwide, raising $5.3 billion, and 335 merger and acquisition transactions with a total disclosed value of $16.6 billion, according to data collected by Thomson Financial and the National Venture Capital Association.

In 2007, venture capital investment increased for the fourth year in a row, with 3,200 companies receiving funding, valued just under $30 billion. The NVCA said 1,279 of those were the companies’ first ever round of venture capital.

In the last two years, Goforth and Hollas said they have made many state and national contacts that will help lend credibility to the company’s future expansion as well as help build brand awareness.

In particular, the Arkansas Science and Technology Authority is using the company’s software to help valuate businesses. The Walton College of Business is using an academic version to help teach students how to valuate businesses and understand risk profiles based on business plans and the company is working with other colleges, Hollas said.

As of the first week in January, there were about 400 registered members in EquityNet’s database, he said. The split is about 50/50 between investors and entrepreneurs.

EquityNet’s revenue stream is fee-based, tied to software and services and not transactions made between investors and entrepreneurs. Therefore, clients can expect more accurate, impartial valuations and analytics.

Much of EquityNet’s software is patent pending, and Hollas and Goforth believe they are the first to offer such an idea to investors and entrepreneurs, though there are some competing products.

Some competitors in this field take a percentage of a transaction and could be motivated to influence a deal.

“When you’re an intermediate, you can’t be preferential,” Hollas said. EquityNet’s fees range from $500 to $9,500.

Hollas said one entrepreneur who has signed on with EquityNet was ready to sell his mature company.

EquityNet helped him get a true valuation on the business and the asking price nearly doubled from the owner’s original estimate.

“Most entrepreneurs — their expertise is not in valuing companies — so sometimes they low ball,” Hollas said.

Of course EquityNet can’t guarantee the business will fetch the asking price, but the owner now has detailed documentation and a much higher point from which to begin haggling.

Hollas and Goforth keep revenue projections close to the vest, but Hollas said all indications are that EquityNet will be a multi-million dollar company in three to five years.