EquityNet Takes the Adventure Out of Capital Ventures Domain

Judd Hollas is a chemical engineer by training, but these days he’s more concerned with mixing human elements.

Specifically, Hollas aims to bring together entrepreneurs and investors – two groups that need each other to thrive, but often have a hard time finding the right match.

“There’s a bottleneck between them, historically,” Hollas said.

With EquityNet, the Fayetteville-based company that serves as a peer-to-peer online marketplace for entrepreneurs and investors of all stripes, Hollas believes he’s on the verge of expanding that conduit. If EquityNet’s growth continues at its current pace, Hollas said it could have “an actual measurable impact on the tributaries of capitalism and have a great impact on economic growth and innovation.”

That would be welcome news for a sector Hollas said has about $2 trillion in private capital waiting to be invested this year. Based on traditional trends, he said, only about $50 million – or 2.5 percent – likely will be invested.

“The epiphany I had here six years ago was that the solution to this problem is not more money,” Hollas said of EquityNet, which he co-founded with Ron Goforth in 2005. “There’s plenty of money.

“The solution to this problem is an efficient, very advanced marketplace.”

Hollas isn’t alone in thinking EquityNet provides that marketplace.

“Business is filled with risk, but some risks are unnecessary,” said Rich Sloan, co-founder of StartupNation, a leading business advice and networking site for entrepreneurs. “EquityNet removes risk for entrepreneurs and investors through a methodical, ‘scientific’ approach that is orderly and allows for strategy to be formed.”

Business Theory

EquityNet isn’t the first endeavor that has aimed to facilitate relationships between people with ideas and those with the money to make them come to life. The problem most such companies encounter is reaching critical mass, Rob Steir said.

Steir is managing director at MindForce Consulting, a venture development and licensing services firm. That’s especially true in today’s “fragmented entrepreneurial online world,” he added.

Hollas understands. He conceded EquityNet dealt with “kind of a chicken-and-egg problem” in its early stages.

“If you don’t have any investors, why does an entrepreneur want to join, and vice versa?” Hollas said.

The key has been the ability of Hollas and his team to develop software that results in more than just a glorified business plan.

“Our big innovation is not so much creating the marketplace,” Hollas said, “but a double-patented, fully automated mechanism for the entrepreneurs to produce something that’s really efficient for the investor to review.

“An investor can look at one of our analytical reports and obtain 10 times the information vs. a business plan in probably a tenth of the time.

“I know it’s a bold claim, but it’s true.”

EquityNet’s patents center around an “Enterprise Analyzer,” which essentially is a scoring system for private companies. The tool has become so effective, Hollas said, that more than 50 percent of entrepreneurs using it have found some kind of funding.

“That’s 10 times the industry average, and I can’t claim that number without explaining why, because people will say, ‘Oh, you’re crazy,'” Hollas said with a grin.

“The reason is one of the main problems in the industry right now is that when an entrepreneur creates a business plan, it’s not speaking back to him. That document’s not telling him if it makes sense or not. Our system does that.”

EquityNet’s standardized system is a 10-step guided process.

“This process is one we designed with leading investors, so it’s focused upon the details and information investors care most about,” Hollas said. “Because of that, the entrepreneur is educated in what they really need to know to be successful in raising money.”

The system also was designed by Hollas and his team, which he said combines the systematic, mathematical approaches used in engineering with a sharp business acumen. His strategic partners agree.

“EquityNet has a unique pool of data from which they draw to create results weighed against market norms and realities,” Sloan said. “That’s fairly original and very appealing when making major decisions about a business opportunity and drawing conclusions about its prospects.”

Price Point

Because entrepreneurs, by their very nature, often are capital-challenged, Hollas sought from the get-go to make EquityNet’s services affordable for practically anyone. The current subscription price for a year’s use of the EquityNet system is $250.

Hollas declined to discuss specific revenue numbers, but said it has doubled annually for the last few years. He said that trend is “easily maintainable” for at least five more years.

EquityNet currently has more than 1,000 entrepreneurs and about 300 capital providers and other business supporters in its system. Hollas said he expects to service as many as 20,000 members within two or three years, and would prefer a ratio of entrepreneurs to investors ratio of between 5:1 and 10:1.

“It’s like the Wild West,” Hollas said of his targeted market. “It’s untapped.”

Sloan said those expectations – servicing 20,000 members, particularly – are reasonable.

“There are millions of people seeking to start up and fund their businesses each year,” he said. “I think 20,000 is a modest membership volume as long as they get the exposure and price their solution attractively.”

Current trends also might be on EquityNet’s side. According to Thomson Reuters and the National Venture Capital Association, there were 72 venture-backed initial public offerings in 2010, the most in any year since 2007.

Additionally, more than 400 acquisitions were completed during 2010. That’s the biggest number of such deals since records began being kept in 1985.

Net Results

Hollas said EquityNet has helped between 400 and 500 startups nationwide obtain funding. That includes 40-50 in Arkansas, and a range of industries as diverse as poultry separation technology and biotechnology.

Some of the reasons for that success, Steir said, is the EquityNet team’s willingness to listen to its clients and continually tweak its approach given the input.

“They are not stuck in the ‘We know better than you’ mindset of most entrepreneurs,” Steir said.

Steir is so convinced, in fact, he had 40 “seasoned consultants” go through training sessions with the EquityNet team in December.

“We only want to be associated with the best, and our partnership marries the best entrepreneurial business planning system for investors with our talented, subject-matter experts who can assist the entrepreneur and help them make the best first impression possible,” Steir said.

“It’s a natural fit, as they are not working with ‘cookie-cutter’ entrepreneurs, nor are we offering ‘cookie-cutter’ consultants.”

Hollas is hopeful it’s a recipe that could change how entrepreneurs and investors do business.

“It’s not just about connecting people,” Hollas said. “It’s actually about empowering a whole investment culture that no one else has done in this domain.”