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StartEngine

https://www.startengine.com/
Startups & Small Businesses
StartEngine is a pioneer in the equity crowdfunding space, offering easy access to high-growth startups and a broad set of opportunities.
Scorecard
B
Quality of Offerings
A
Fees
A
Quantity of Offerings
A
Brand
D
Liquidity & Cash Flow
C
Risk & Diversification
Accessibility
A
Alts for All Score
5 - Excellent

StartEngine is one of the pioneers of the crowdfunding industry. Since launching its first campaign in 2015, the company has facilitated more than $200M worth of transactions for more than 300 fledgling businesses. These milestones have coincided with an influx of prospective and active investors, as the platform has over 275K registered investors. The site has also raised multiple $10M+ rounds on its own platform, each attracting upwards of 4K investors. Offering investments for as little as $100, StartEngine is consistently referenced as a leader in the burgeoning equity crowdfunding space.

The dynamic nature of the company, and the success it has realized thus far, is partially contextualized by the background of its CEO and Founder, Howard Marks, who was previously the co-founder of the gaming company Activision (NASDAQ: ATVI, $60B+ market cap). The site’s ethos isn’t limited to Marks; Kevin O’Leary (aka Mr. Wonderful) of Shark Tank serves as an advisor for the site and is featured on most of its promotional material. Together, the two form the basis of the site’s value proposition, encouraging investors to follow “the sharks” when considering investing in startups through crowdfunding.

The platform offers campaigns under Reg CF and A+ (for non-accredited investors), as well as Reg. D, which allows for companies to raise an unlimited amount of capital from accredited investors. Minimum investments begin at $100 but vary on a deal-by-deal basis. The company has historically utilized the Reg. CF framework, which caps total dollars raised at $1.07M, for its crowdfunding offerings, but has since formed StartEngine Primary, a wholly-owned subsidiary that has expanded its capabilities. With its broker-dealer designation, StartEngine can raise up to $50M through the Reg. A+ offering structure, allowing for a more diverse offering of investment opportunities for investors in all 50 states. The company also claims that its gaining broker-dealer status marks an important next step towards building a comprehensive trading platform that will facilitate secondary transactions to provide liquidity and investment opportunities for existing and new investors, respectively. This would go beyond the model employed by MicroVentures – which offers stakes in late-stage private stock separate from its equity crowdfunding offering – and let investors liquidate stakes in early-stage companies, mitigating the duration risk of investments that rarely pay off in less than five years.

While not necessarily a negative attribute, it's important to understand that StartEngine does not appear to conduct deep diligence on individual companies or try to prognosticate their likelihood of commercial success. Notably, this is also a characteristic which the platform shares with most of its competitors. Instead, it appears that the company allows all businesses that pass its eligibility requirements to launch a fundraising campaign on the platform. StartEngine uses a list of "soft" eligibility criteria to take a "holistic approach" to evaluate companies and protect investors from risk. However, it remains unclear whether this information serves to ensure companies can clear a minimum bar of legitimacy or if they have a higher, intangible standard for approving companies. In short, StartEngine should not be seen as a "VC-as-a-service," but rather a platform that provides a high volume of legitimate deals from verified companies, placing the onus on individual investors to independently judge the potential trajectory of each prospective opportunity and to make their own investment decisions accordingly. SeedInvest, as a counterexample, accepts less than 1% of applicants as part of a stringent vetting process, providing investors with thorough financial due diligence on each listing. Again, while not necessarily a negative attribute, this is a key dynamic of which to be aware for less experienced investors who might be better suited using a site that leverages a more substantive due diligence process to make final investment decisions.

The company's site is highly user friendly, allowing investors to manage and track their investments with an "investment dashboard." The site also features a good educational resource in its FAQ page, and is highly transparent with the provision of platform-level statistics and its own internal financials. For those seeking to make individual early-stage equity investments in startups, StartEngine is a top choice to consider.

Pros

  • The company is highly transparent with its own internal operations, having published videos of its earnings calls and posted its own financials online. The company has organized a series of "Founder's Summit" events to bolster its brand and strengthen its community of companies and investors.
  • StartEngine was a first-mover within the equity crowdfunding space and has demonstrated its ability to adapt to changes, best evidenced by its strategic addition of the StartEngine Primary vehicle for Reg. A+ investments.
  • The platform is led by Howard Marks, a highly accomplished entrepreneur, and has associated itself with Kevin O’Leary from Shark Tank, who serves as an advisor.
  • StartEngine’s low minimum investment and non-accredited opportunities make the site accessible to the average investor and enable self-imposed diversification through stakes in multiple companies.

‍ Cons

  • -The site lacks the selectivity of SeedInvest, a major competitor, which is the product of its decision to use a “holistic” vetting process that may consider factors outside of financials. Investors are best off conducting their own diligence before investing.
  • -In terms of both returns and liquidity, investments in the equity crowdfunding space involve an inherent amount of uncertainty. Furthermore, any changes in the regulatory environment may affect these platforms’ business model.