Invest in Equity Crowdfunding Giant Start Engine's Billion Dollar Round

Company Overview

Brief: StartEngine is one of the three leading equity crowdfunding platforms. It offers an easy way for startup founders to raise funds from their communities, and it brings a large selection of startup deals to all kinds of investors. But StartEngine is highly overvalued. Its current valuation of $1.3Bn may be a concern for investors at this stage, as they may see limited returns in an exit.

Key People: Founder and CEO Howard Marks (co-founded gaming giant Activision, founded and sold Acclaim Games), Strategic Advisor and Spokesperson Kevin O’Leary (founder of SoftKey, investor famously known for Shark Tank).

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Terms

Security Type: Equity - Common

Valuation: $1,320,000,000

Amount Raised: $8,194,775

Minimum Investment: $500

Takeaway

Here's what I like: I am obviously a very big (and early) supporter of equity crowdfunding (EC), and self-directed investing platforms in-general.

(DISCLOSURE: I’m an early investor in one of StartEngine’s chief competitors, Republic.)

Let’s start at the top: StartEngine CEO Howard Marks is as legit as it comes in tech. He co-founded Activision and was super early in crowdfunding as well. I would bet on Howard to find a safe exit every day of the week.

As for the EC space? It’s been a long time coming, but I think there are enough proof points from the past few years to feel pretty comfortable saying this market is not going away. If anything it will double in size over the next few years (already nearly $100Bn in trade volume across pre-seed through pre-IPO offerings), according to Technavio.

What I like most about StartEngine, relative to its competitors, is its ability to make a splash by signing deals with big name tech execs like Shark Tank’s Mr. Wonderful. If there’s one thing EC has struggled with over the years, it's getting mainstream attention.

And this is one area where Howard and the StartEngine marketing team thrive!

Here's what I don't love: If you listen to my podcast, this will come as no surprise. The single biggest thing EC has working against it — compared to investing platforms such as Robinhood or OpenSea — is the fact that volatility is super low!

So low, in fact, that you may not see any update from an investment for YEARS!

This is due to most of the assets being illiquid (meaning you cannot freely sell or trade shares after purchase). Not only does this cause volatility to be essentially zero or hero… but it takes forever to see ROI. But this is a market problem, not a StartEngine problem.

As it pertains to StartEngine, my biggest nitpick has always been the type of investment deals that run on the platform, as well as the minimum investment size being so much higher than minimums on Republic or Wefunder.

This is still largely true, but the gap has definitely narrowed.

Who should invest and why: I've had a chance to invest in StartEngine a few times over the years, but instead, I went with Republic because they’ve significantly diversified their focus areas beyond just startups — adding real estate, crypto, video games, music, etc. Not that StartEngine cannot do the same, but it’s always harder to overcome a late start.

Something else to consider on this deal would be the price -- $1.3Bn 👀 woof! In order to make even a 2x on your money, StartEngine will need to sell for at least $3 billion, which is not out of the question. But it’s certainly a different investment profile than we’re used to covering.

Another thing worth noting here is the fact that 20% of the round proceeds will be going to company leadership (including $2M to Howard Marks), who are selling personal shares as a part of this raise. Personally, this does not bother me at all. This is definitely not the first time key employees have taken money off the table. However, this does bother some investors — I guess they think the team won’t try as hard 🧐

Overall, if you’re an active equity crowdfunding/private investor, it’s always fun to own a piece of the platforms you invest on. Additionally, I do not foresee StartEngine failing, but the expected returns must factor in the price of this round.

As always, startup investing is super high-risk, and anything can happen. Don't invest anything you can't afford to lose.

Invest in StartEngine here 👉 Term Sheet

DM’s open on Twitter & IG 🤳 @kitun.