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.

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J M Kripp says

It is totally impossible for a start-up to spend 1.8 Mio on greedy lawyers for IPO preparations, it's just not there in the beginning ...! OK, for a change let's hear about a realistic, down to earth funding source or method. Lots of people are waiting ...!
Posted at 2:40 pm
B W says

I think that that is a great way to raise funding. You just need to find the right fit in regards to a quality law firm, as noted, and bada bing, bada boom, your public (actually I am sure it is more involved). ;) Another interesting aspect is managing control. That as a small business can be a difficult hurdle. Ironing out all the aspects of IPO's I am sure is quite interesting and at times scary as well, for a smaller company. I know my hope someday is to hit that plateau then look for the mountain!
Posted at 3:14 pm
mike green says

I heard a guy pitch the practice of raising quick capital via Direct Public Offering: a legal window through which small companies can raise money in their own state without running afoul of the SEC. Within the DPO boundary exists such options as advertising to targeted groups. There is a limit on the number of participants, but if the offer is to provide a percentage of revenue share (royalty payments) based on profit, then no equity is involved and the entrepreneur isn't selling off pieces of the company nor impacting the valuation of the company. The participants in a DPO are buying into the projected profit potential of the company, of course, which is high risk. But they don't have to be qualified accredited "sophisticated" investors either (like angels and VCs).
Posted at 3:45 pm
Andrew Way says

For your readers' consideration. I was asked to join a private equity fund out of Aspen. Group vision and model didn't match my own (I have no interest in charging fees and they did). I found this out only after sending out an email and recieving more than 100 responses with opportunities inside of the first two hours. Our of interest in maintaining my integrity and performance with these prospective clients and my personal relationships, I decided to raise my own funds. Brokerage. Fortunate for me I managed to successfully practice relationship management. Results have been good. Point. Raise money by brokering. Must be direct or one away from buyer or seller. These fees can be significant enough to fund your initiative. Of the five principles involved we are each successfully using brokerage to fund our seperate projects. Sorry for the longwinded response. Found it important.
Posted at 8:45 pm
Scott Fasser says

What about raising money through the OTCBB? The regulations around reporting have gotten tighter and it is a liquidity opportunity for shareholders. Any thoughts on that approach? Especially if you can back into a public shell that already exists.
Posted at 10:17 am
Cash today says

There are many options as advertising to targeted groups. There is a limit on the number of participants, but if the offer is to provide a percentage of revenue share based on profit, then no equity is involved.
Posted at 8:16 am

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