Far Away Start-Ups In Need of Cash –

NEW YORK – With more than $60 billion committed to the asset class, private equity managers are swimming in a sea of capital. However, according to a report issued in July by the Kauffman Center for Entrepreneurial Leadership and Babson College, the distribution of that capital resembles Asia’s fertile crescent in that entrepreneurs near the money fare well, but those far away struggle to grow.

The Global Entrepreneurship Monitor (GEM) 1999 National Entrepreneurial Assessment for the United States of America acknowledges the country’s lead in business start-up activity, but cites inefficiencies within the market as potential future problems.

After interviewing 36 experts from various fields, the research team discovered that, despite the ever-growing amount of available institutional start-up capital, many entrepreneurs find equity capital difficult to raise. Obtaining funding becomes particularly prickly for companies outside main urban metropolitan areas and for start-up businesses that are managed by women and minorities.

“There seem to be two groups of opinion on this, one believes the markets are efficient and the only reason people lack funding is a lack of sophistication,” said Andrew Zacharakis of Babson and the lead GEM researcher. “The second sees a seed financing gap.”

Disbursement numbers seem to support the concept of a financing gap. In 1998, venture capital firms invested more than $10.3 billion of the $16.02 billion total, in five states – California, Massachusetts, Texas, New York and Colorado, according to Venture Economics Information Services, a sister company to VCJ.

“Outside those areas, it is difficult [for entrepreneurs] to get going,” said Stephen Pelletier, chief executive at Offroad Capital, a Web-based financial services firm that sources post-angel venture deals to individual investors in all 50 states.

Generally, those that considered this spread as a problem suggested two remedies, Zacharakis said. Research showed that individual investors participate more actively in new businesses than previously expected. The report states that 5.5% of adults in the country are already investing in new businesses, so researchers suggest making information more readily available to accredited investors.

To be sure, investment banking on the Internet increasingly is creating opportunities for individuals to access the private equity market. Offroad Capital, E*Trade and Circle Group have operations in place that source deals to individual investors, and Wit Capital Group and others are developing the capacity.

“I knew that the traditional equity market was a tough nut to crack,” said Greg Halpern, co-founder of Circle Group, which has raised almost $30 million in private financing under Regulation D through its Web-based service. “So I developed a forum that I thought could help other businesses.”

Another suggestion was for the government to create a simplified clearinghouse of the various programs intended to support entrepreneurs that currently are so scattered and complex as to be mindnumbing for entrepreneurs.

“The experts felt that the bureaucracy would discourage entrepreneurs,” Zacharakis said. “So one thing would be to set up a clearinghouse, probably Web-based, to screen appropriate programs.”.

If the findings and suggestions within the report lead to a stronger entrepreneurial community outside the traditional areas, a new influx of companies could solve the ongoing complaint of “too much money chasing too few deals.”