Ninety-nine percent of people have never invested in a private startup.
Makes sense. It had been illegal since 1933, except for accredited investors.
That all changed May 16. Now suddenly there are dozens of opportunities available online. Equity crowdfunding deals that anyone can invest in, with minimums starting at $100.
It’s a chance to invest in promising young companies. What’s better than that?
But most people I’ve spoken with don’t know where to start.
For new early-stage investors, I would say the initial focus should be on understanding the various equity crowdfunding “portals” (the sites offering ECF investments).
These portals are a new type of business created by the JOBS Act of 2012. They are regulated by the SEC and FINRA.
Think of portals as miniature stock exchanges (NYSE, Nasdaq, etc.). But there’s one important caveat: Unlike stock exchanges, equity crowdfunding investments are not “liquid.” These are early-stage deals. Expect to hold on to them for a long time, and don’t invest money you’ll need soon.
Like stock exchanges, ECF portals will compete with each other to list the most promising investments. Each site will have its own method of attracting companies.
Getting to know which ones have the best “deal flow” is critical.
Today I’m going to share what I know about them.
Wefunder has taken the early lead in equity crowdfunding. It launched 20 deals within the first week. That’s more than everybody else combined. It’s very early, and many more portals will be coming online soon. But Wefunder hit the ground running.
I’ve known Mike and Nick from Wefunder for a few years. Andy and I visited their San Francisco office last time we were out there. They run a well-oiled machine and have done deals of a similar nature for around three years already (for accredited investors).
They are well-connected in Silicon Valley. The first accredited deal on their platform was a startup called Zenefits. It went from being worth $9 million in 2013 to being worth around $3.5 billion today. In just a few years.
These guys were instrumental in getting the JOBS Act (which made all of this possible) passed and signed into law.
Right now, Wefunder is the best place for investors to start looking at deals. It has a large number of quality deals. All the information is clear and easy to understand, with the deal terms shown prominently.
It’s early, but Wefunder has positioned itself well.
StartEngine is the second-most active equity crowdfunding portal (in Title III deals) behind Wefunder. It currently has six live opportunities.
The company was founded by Howard Marks and Ron Miller, both experienced entrepreneurs.
I don’t know as much about StartEngine yet, as it just started operating recently. I haven’t seen enough deals to get a good sense. But I’m certainly watching it and checking out the deals.
There are a few interesting ones live right now, including Bloomery, a craft distiller. I happen to know this company. It’s about an hour from where I live in Maryland, right across the border into West Virginia. I have a few friends who are fans of its products.
It’s an excellent example of a small consumer brand that could benefit from ECF. It looks like a neat company. However, if you’re considering investing, make sure you review the financial section of its profile page. It’s got a fair amount of debt on the books, some of it short term.
The valuation is somewhat low to reflect its financial situation, but you should always know the risks going in. Learn how to eyeball a balance sheet if you haven’t already.
New York-based SeedInvest has been doing these types of deals for a while. But only for accredited investors – until recently.
I’ve gotten to know members of the team at SeedInvest over the last two years. They’ve built an impressive platform and do a great job selecting startups. We’ve recommended a few companies from SeedInvest to members of our service for accredited investors, Startup Investor.
SeedInvest currently has three equity crowdfunding deals live. Expect to see more soon. It also has a number of Regulation A+ listings. As a reminder, Reg A+ are larger deals (up to $50 million).
I briefly mentioned Republic two weeks ago when I first heard about it. I’ve spoken with the founder, Kendrick, since. And I’m very excited about what they’re building.
Republic is a spinoff of AngelList, a leading accredited investor portal. AngelList has some truly impressive deals. Some of those startups will opt to “top off” their rounds via the crowd on Republic.
For consumer startups, offering a small part of a round to non-accredited investors is going to be a great option. More investors, champions, helpers, enthusiastic supporters and money. It also gives friends and family a way to invest.
AngelList should feed Republic a steady drip of quality deals as it builds its own brand. That’s why I’m alerting you, despite the fact that it hasn’t launched yet. You can get on the invite list for Republic here.
There will be many more portals coming online over the next weeks and months. Some of them, like existing crowdfunding giant Indiegogo, will make waves when they enter the equity crowdfunding realm. With millions of existing users and tens of thousands of companies, they could bring hundreds of deals to the table in a short time frame.
There are all sorts of other fun things in the works, like an equity crowdfunding portal for independent movies. It’s called Indie Crowd Funder. I’m not sure how good of an investment independent movies are, but it could be fun. And hey, maybe you’ll hit the next Blair Witch Project… or not.
Have a great weekend.
Full disclosure: We recommended investments in Wefunder and SeedInvest to members of Startup Investor.
We don’t personally own shares in any company we recommend or take compensation from them.
P.S. We positioned our members well for the launch of equity crowdfunding, and they own shares in two of the leading platforms. We’ll be launching First Stage Investor, a service for everyone, in the next 30 days. Stay tuned.