IN TOUCH WITH AN ANGEL: ONLINE BIZ PAIRS INVESTORS, COMPANIES SET TO GO PUBLIC

Financial advisers may soon have something new to offer their wealthier clients: the ability to invest in privately owned companies on the verge of going public.

This summer OffRoad Capital, a San Francisco start-up, is launching a “private equity marketplace” that pairs companies needing expansion capital with investors who have at least $1 million to risk — all via the Internet.

It’s one of the first companies to give ordinary millionaires an inroad, online or otherwise, to privately owned companies.

According to Securities and Exchange Commission data, less than one-half of 1% of the discretionary wealth in affluent households is invested in private companies. Last year the country saw 250,000 angel investments from the 5.7 million households with at least $1 million in net worth.

OffRoad is capitalizing on individual investors itching to get involved. Its offering works like this: an investor pays a $1,000 initiation fee to establish an online account with either OffRoad’s brokerage, OffRoad Securities Inc., or an allied broker-dealer. (OffRoad declines to name participating brokerages before the service is launched late next month, citing SEC regulations.)

In an atmosphere that’s part investment bank, part Internet investor community, OffRoad members can then interact with the principals of issuing companies through question-and-answer sessions over the web.

Potential investors are also given one opportunity to meet with a company’s management. If an investor likes what he sees, he makes an investment of at least $25,000.

Even a board seat will get thrown in to the mix on occasion, says OffRoad CEO Stephen Pelletier. “It all depends on the particular financing,” he explains.

OffRoad itself plans to charge issuing companies a retainer of between 5% and 10%, a range comparable to what most traditional underwriters garner.

At inception, the firm is setting its sights on later-stage growth companies with revenue growth of 20% or more and an identifiable exit strategy, be it via IPO or acquisition.

“They are targeting the less sexy, low-profile companies with consistent, not shoot-the-lights-out growth,” observes John Payne, a consultant at Boston research firm Cerulli Associates.

Mr. Payne thinks OffRoad’s model can successfully leverage wealthy private-placement seekers, but he sees the linchpins of its success as the “quality of the deal flow and the spotlessness of its due diligence.”

On its face, due diligence doesn’t look to be a major stumbling block for OffRoad. Former SEC commissioner Steven Wallman is a board member and Susan Woodward, formerly chief economist at the SEC and deputy assistant secretary of Housing and Urban Development, is executive vice president of research. According to Mr. Pelletier, a former Intuit Inc. executive, OffRoad already has 10 investment bankers on board, most from Goldman Sachs Group Inc.

Still, others have their doubts about the company, including competitor Hans Severiens, coordinator for the Band of Angels, a network of 120 technology executives, investment bankers and venture capitalists in Silicon Valley who finance private companies needing $2 million or less.

Mr. Severiens thinks OffRoad is wise to zero in on the oft-overlooked late-stage financing space; venture capitalists, for example, are typically interested only in new, high-growth companies that hold the possibility of taking off like a rocket and returning a hefty profit.

Nevertheless, Mr. Severiens doesn’t agree that individual investors should be picking up where the venture capitalists leave off — especially not in deals conducted online. “There’s nobody in cyberspace saying, ‘Watch out, the CEO of the company you’re investing in has been in prison,’ ” he quips.

“In general,” he adds, “people shouldn’t invest their personal money in anything unless they do it at the recommendation of someone they really trust and have worked with for a long time.”

envisions a heavenly host

Mr. Pelletier argues that OffRoad is already beefing up its relationship with third parties like financial advisers and brokers. They’ve been responsible for introducing some of the 1,000 investors in OffRoad’s database to the company, he adds, although he declines to name the advisers, brokers or investors.

In fact, Mr. Pelletier continues, he envisions a network of 10,000 to 15,000 wealthy individuals working directly and indirectly with OffRoad within two to three years.

Whether that objective proves too lofty remains to be seen. A surer thing is the buzz that OffRoad and its new marketplace are generating.

“I think OffRoad’s idea is great,” says Christine Comaford, managing director at Artemis Ventures in Sausalito, Calif. “It’ll give people a way to zoom in and zoom out and enjoy the pop of the public market.”

At least, suggests Ms. Comaford, whose firm invests in early stage start-ups, “it might be a less frustrating experience than trying to get ahold of IPO shares after the fact.”