Smaller companies hunting for cheap ways to raise capital are turning to the Internet as a way to sell stock directly to the public.

The movement, tiny at the moment, has the blessing of securities regulators.Some officials, however, worry that amateur investors may have trouble telling honest companies from the hordes of scam artists who troll for victims on the computer network.

Spring Street Brewing made the first direct over-the-net stock offering last year. The tiny New York maker of Wit Beer raised $1.6 million through its home page.

A handful of offerings have popped up since, and perhaps 30 firms are now preparing direct internet offerings.

Meanwhile, a California, a company called Direct Stock Market Inc. is forming a site on the World Wide Web (http://www.direct-stock-market.com) for investors looking for direct stock offerings.

So far, the Securities and Exchange Commission seems to approve of the movement.

"We're certainly not discouraging it," an SEC spokesman said. "Generally, our position is that the Internet and electronic media are just another way of doing business."

The SEC last month gave permission for stock trading through an Internet "bulletin board." A small California catalog company, Real Goods Trading, will run the board for people who want to buy and sell its thinly traded shares without going through a broker.

Direct Stock Market plans to set up its own bulletin-board trading system for small direct-offer companies.

Missouri Securities Commissioner Doug Wilburn calls Internet stock offerings a terrific idea. But he's worried that investors could be tricked into buying shares in nonexistent companies.

The ease of creating a home page has already made cyberspace a magnet for ripoff artists. "We're seeing a lot more illegitimate activity than legitimate activity on the Internet," Wilburn said.

Regulators have found Web sites hawking phony investments in eel farms, a Costa Rican coconut chip factory, Caribbean ethanol plants and a host of schemes promising to double investors' money.

Investors should check with their state secretary of state's office to make sure an Internet offering has been legally registered, Wilburn said. They also should avoid pitches that urge investors to send money quickly.

"The scammers are the people saying you have to invest right now," Wilburn said.

Andrew Klein, who heads Spring Street Brewing, has another warning for Internet investors: The legitimate direct offerings through cyberspace are likely to be high-risk.

Venture capitalists take big risks in hopes of big rewards if a small company takes off. Company owners, though, often complain that venture firms demand too big an ownership stake in return for their money.

In effect, Internet offerings let small investors become pint-sized venture capitalists.

"Small investors ought to be able to put $5,000 into a high-tech startup company if they like," Klein said. "But they should know that a lot of deals are not good deals."

Direct offerings can appeal to companies that are too small to attract an investment bank willing to take them public.

But a do-it-yourself offering can be expensive and time-consuming.

Legal fees for preparing a small offering should range from $7,500 to $10,000, says securities lawyer John Perkins, chairman of the Direct Public Offering Council. But Perkins has heard "horror stories" of $50,000 legal bills.

Beyond that comes more time and expense negotiating approval from securities regulators.

About 2,000 companies have tried to go public through direct offerings, on and off the Internet. Of those, only 700 made it through registration, and only a handful raised the money they sought, according to Clay Womack of Direct Stock Market Inc.

And Internet offerings are likely to get tougher to accomplish as the novelty wears off.

Spring Street Brewing reaped a pile of publicity as the first Internet offering, and that drew visitors to its Web site. Companies that follow will find it harder to attract attention.

That means company executives will have to expand their marketing plan beyond the Internet in order to sell their stock, Perkins said.

After selling stock, a small company's next problem is how to develop a secondary market for its stock.

Direct Stock Market Inc. plans to offer computer bulletin boards, where investors can post offers to buy and sell.

The SEC has indicated that it will approve such boards as long as prices of actual trades are posted and an independent firm handles the actual stock transfers.

(Distributed by Scripps Howard News Service.)