FundRaising Inc. seeks growth capital via a little-used state financing option
By Kay Falk, for SBT
Dick Raddatz, a 30-year veteran in the fundraising industry, started his own small company in Cedarburg in 1990, not realizing he would someday be seeking up to $1 million in growth funds via a little-known state program that could help him take his business to the next level.
He started small with his operation, then known as Raddatz Marketing. "I saw the need for direct sales to fundraising groups," he recalls. "I began by sending postcard decks offering free lollipops – my only product, to schools, teachers and coaches."
Then came the Internet, which Raddatz, CEO of the company, was smart enough to take notice of in its early years. In 1995, he acquired the domain name FundRaising.Com, even though he had little understanding of the Internet’s potential. As he began to see the power of the Internet, Raddatz added 30 more products to the line, and the Web business caught on.
Today, Fundraising Inc. is the parent company of FundRaising.Com, an Internet-based distributor of fundraising products and programs nationwide with sales in the millions and 50 employees at peak times.
To grow further and afford to distribute a new 40-page, full-color catalog to potential customers, Raddatz and Lauralee Oenick, vice president of sales and marketing, have turned to a special state program that is not well known but could bring them the capital they need to expand FundRaising.com. By filing a U-7 disclosure document with the Wisconsin Department of Financial Institutions (DFI) in June, they are seeking up to $1 million in an equity offering – but not to typical investors.
"We tried raising money to expand the business via traditional means, but when the stock market bubble burst, so did several funding sources," Raddatz says. "And, from venture capitalists’ viewpoints, we weren’t seeking a large-enough sum of capital nor producing software or biotech products. Like many young companies, we were left with few options."
Raddatz turned to the Internet and discovered an article on Orion Lighting in Plymouth in Sheboygan County. "The article told how Orion and Steve Heins raised capital using the state’s Issuers Exemption Program. Steve directed us to DFI in Madison where we learned more."
David Cohen, a supervising attorney with the state Division of Securities in the DFI, explains that most states are covered by a uniform security law. Wisconsin lawmakers realized such a clause left out many small businesses that didn’t have a network of usual investors.
"Under state security laws (since 1986), the exemption program allows small private companies in Wisconsin to go direct to the public to raise business capital of up to $5 million – from up to 100 non-accredited investors," says Cohen.
In addition, the issuing company can advertise its common stock all it wants (which isn’t possible with traditional stock offerings), but the company is not allowed to pay commissions to investment bankers.
"We can also seek accredited investors, people who have a net worth of more than $1 million or have made more than $200,000 per year for the past two years," Oenick explains. "But we’re excited about reaching non-accredited investors in our area. These are people who don’t want to just call a stockbroker and be part of a huge corporation. We seek those individuals who want to get ‘up close and personal’ with our Cedarburg management, call with questions, visit the facilities and be involved in shaping our business. They can get a better perspective of what they’re investing in, while we reach investors a business normally can’t locate."
Raddatz adds, "Because we’re not allowed (under the exemption) to pay commissions, which can be anywhere from 8% to 12% with traditional stock offerings, all the money invested by non-accredited investors goes to help our company grow. It’s a real advantage to us and the investors."
Raddatz notes that the exemption is not well known. "Few companies are aware it exists," he says. "And investment bankers and attorneys don’t spread the word. But the state is using this exemption to encourage people to invest in Wisconsin businesses."
Cohen agrees. "We get only one or two U-7 documents each year. So far, word of mouth has been slow to let Wisconsin businesses know about the exemption. I urge small businesses in search of capital to try this. It’s a useful tool."
The state does like its paperwork, however. "It takes commitment and time to fill out the more than 100 questions in the U-7 disclosure document," Oenick points out. "It’s very detailed. Even with my investment banking background, it took us a month, off and on, to complete it. I would imagine it would take others with less banking experience even longer, or they would need some help."
That assistance is available at the DFI. "The U-7 document is detailed, but it’s like a prospectus you get when you want to invest in a traditional stocks," Cohen explains. "The format is fill-in-the-blank. It creates a document designed to list the risk factors and company information for potential investors. It’s also a format businesses can complete without turning to outside resources. We at DFI are here to help and guide businesses through the process."
For more information about the exemption and the U-7 document, contact Randall Schumann at the DFI by calling 608-266-3414 or e-mailing him at randall.schumann@dfi.state.wi.us. (He is the person who reviews the U-7 documents.) You can reach David Cohen at 608-266-2801 or david.cohen@dfi.state.wi.us.
