Getting a business off the ground requires more than a lot of hard work. It requires raising hard cash. Many small businesses have trouble raising seed money to get started, but those that succeed in raising initial funds can seek out venture capital firms for additional financing. Eventually, they can go public by floating a stock issue. Today, a business can go public on the Internet – it can sell shares to the public directly. Spring Street Brewing Company made history back in 1995 when it became the first company to conduct an initial public offering (IPO) over the Internet. It made history again in 1996 when the Securities and Exchange Commission (SEC) allowed Spring Street to trade its shares via its Web site without registering with a broker–dealer. The SEC only required Spring Street to use an independent agent, such as a bank or an escrow agent, to process the funds it raised on the Internet. (Although the company broke ground with regard to its financing, ultimately the market for micro brewed beers declined, pushing Spring Street out of the brewing business.)

The SEC estimates that going public using the traditional, non-Internet route takes about 900 hours of work. Most of this time is devoted to preparing a prospectus prior to the sale of the stock. Companies also have to hire specialized lawyers and use an underwriter, who normally charges a fee equal to about 10 percent of the value of the IPO. The cyber-based alternative is to buy a program called CapScape. This program automates the process of compiling the offer documents, permitting the company to sell shares directly to investors over the Internet.

Who stands to lose if Internet IPOs become commonplace?