By nearly every media account, Spring Street Brewing Co.'s direct public offering in 1996 was a whopping success. That the little brewery fell short of its $5-million fund-raising goal mattered little. To have raised nearly $2 million over the Internet was itself worthy of the record books--especially to the cash-strapped entrepreneurs who ate up the story.
Andy Klein, a former securities lawyer and founder of the brewery, details how Spring Street's historic Internet offering ultimately failed on several counts...
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Of 500,000 people who came and saw the prospectus on our site, only 3,500 invested. Yeah, we raised nearly $2 million, but the conversion rate was very, very small.
People aren't that stupid. And I say that sort of tongue-in-cheek. I mean, our beer company was a very decent offering, a perfectly legitimate effort to raise capital. But the average investor is smart enough to know that if there's not an intermediary who's in the business of evaluating the company, doing due diligence, and putting its reputation on the line with the company's reputation, that investors should beware.
The experience of the beer company proved to me that there was an enormous capability to raise capital through the Internet, but that what was missing was value that comes from having an intermediary.
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http://www.inc.com/magazine/19990901/13720.html
