Forget Venture Capital: Vringo Takes A Unique Approach to Raising $9.2 million

Last week, Vringo, a video ringtone company raised $9.2 million.

That’s a lot of money, particularly considering that Vringo only generated $20,000 in revenues last year.

What’s most interesting is how Vringo raised the money.

It didn’t raise the money from venture capitalists, angel investors, or any of the usual suspects. Which is particularly surprising since Vringo’s CEO and co-founder, Jon Medved, was formerly a venture capitalist himself.

And it’s surprising since Vringo had previously raised $17 million in venture capital.

So what did Vringo do instead?

Vringo decided to go public on the New York Stock Exchange.

Vringo sold 2.4 million shares at $4.60 per share for a total of $11 million. (The stock price has since decreased to $3.80 per share.)

In an interview with the New York Times, Medved sited a couple of key advantages of being a public company, including:

1. It gives credibility. This credibility is key to a small company, particularly if it is selling to big customers who might be skeptical of their ability to stay around long-term.

2. It helps with recruiting top management talent, particularly since the value of/likelihood of exercising employee stock options appears greater.

The huge negatives of going public however were the massive amount of time required to do the pre-IPO roadshow and the $1.8 MILLION in estimated offering fees.

That is a lot of money -- and unfortunately precludes most other entrepreneurs from taking this route.  But, I would imagine that with the right law firm, these fees could have been dramatically reduced, to half that amount or less. But which would still require an entrepreneur to raise an angel round to fund the expense of going public.

According to Medved in his NY Times interview, when asked about whether he would recommend going public to other smaller companies, he replied: “I would certainly tell them to think about it, and not to rule it out. It’s a mistake to rule it out from first moment. Most people don’t even think it’s possible. We proved it’s not only possible, but it works.”

Next week, I will be unveiling an even more creative funding source than taking your company public. With this brand new source, you’re not going to raise $9.2 million (it works for smaller amounts of money). But, you won’t need to spend a penny on fees, you can raise the money really quickly, it’s practically foolproof, and you don’t ever have to pay the money back….pretty exciting stuff.