Investment firm Technology Funding, San Mateo, CA, will launch a two-year direct response campaign April 6 aimed at raising $100 million in venture capital entirely online.
The company said it is the first venture capital fund with authorization from the Securities and Exchange Commission and the National Association of Securities Dealers to market a new offering exclusively on the Web. The 19-year-old company estimated that it will save more than $3 million by communicating with investors exclusively by e-mail and through its Web site at www.techfunding.com.
“We've gotten approval from the SEC to do an entirely paperless investment,” said vice president Jody Sherman, “which means I don't have to print a prospectus, I don't have to print my marketing material, and I don't have to print quarterly or annual reports or 1099s. The money that I used to spend on paper is now my new marketing budget.”
Technology Funding has investments in about 60 companies, including women's content publisher and WebTV competitor NetChannel. Sherman said the company's practice of catering to smaller investors — with as little as $1,000 — through a network of broker-dealers makes Technology Funding's potential savings using the Web even greater than other venture capital firms tempted by a similar approach.
“Where other companies go for large institutions, pension funds and university endowments, we've always raised money in smaller amounts from larger numbers of investors,” Sherman said. “[Therefore], we have $315 million under management and 42,000 investors. It used to cost us about 8 percent to 10 percent of the money we raised just to pay broker-dealers.”
Along with the paper savings, the Web will allow Technology Funding to cut broker-dealers out of transactions with investors.
On Jan. 6, the company launched a test campaign of about 40 million banner impressions using eight creative approaches on sites like Wired, Geocities, InfoSeek, Quote.com, WhoWhere, InfoSpace, Physicians Online and Silicon Investor and the finance sections of Yahoo and Lycos. The banner campaign also tested various targeting approaches from run-of-site advertising on search engines to pinpointing only to visitors with registered investment portfolios viewing financial content.
Sherman said click-throughs — the rate at which site visitors respond to banner ads — for run-of-site advertising on the search engines ranged from 0.75 percent to 1.25 percent with a “really low” conversion-to-investment rate. He said the click-through rates for ads served with finance-related content ran about 4 percent with typical conversion rates of about 0.5 percent.
In other media, an e-mail test to 45,000 investment-information requesters from New York e-mail list firm NetCreations garnered Technology Funding a 2.5 percent response rate, Sherman, said, adding that he was unable to track conversion because of an oversight at Technology Funding.
A test on customized e-mail news service InfoBeat received a 0.75 percent response rate with a conversion rate of what Sherman said was a comparatively high 1 percent. Sherman said the average investment so far is $3,240, adding that he also is pursuing SEC approval to accept credit cards.
“Every single person in our focus groups said they would invest with a credit card,” Sherman said. “If we get that approval, we believe our sell-through [conversion] rate will go into the stratosphere. Plus, you get frequent-flier miles.”
Sherman said federal regulations prohibit ads that prospect for venture capital by making promises, so Technology Funding created ads with headlines like “Click here to lose all your money.” Another featured a broker with a hammer hanging over his head and the headline “Click here to bonk this broker.” The most successful banner so far featured a broker, a steamroller and the headline “Click here to run over this broker.” Sherman said it is drawing click-through rates as high as 7.9 percent.
As a result of the tests, Sherman said, the company's initial plans are to roll out 120 million banner impressions to Wired (www.wired.com) and seven other sites with similar demographics.
“This is a technologically elite group, many of whom work for start-up companies, so they know how venture capital works,” Sherman said.
He also is working on trade relationships with various e-mail newsletters, which he declined to name. As for the exact length of the campaign, Sherman said, “We have until Dec. 31, 1999, or until we raise $100 million, whichever comes first.”
