Why I no longer invest on StartEngine
A few years ago when early-stage investing (investment crowdfunding) went mainstream I was very excited and over the years invested small amounts in various companies on StartEngine and similar companies.
I found it not very rewarding though for one (obvious in retrospect) reason – StartEngine helps companies to collect investment, get their fees, and when you’re on your own. Companies may use the platform to provide some kind of updates but they do not have to and often, they do not.
In a number of cases, I simply find the company website down and the Founder working on different projects on LinkedIn with no communication about the company being shut down (or might be assets, IP being sold? I do not know) either from the company management or StartEngine. Moreover, the old capital-raising pages just seem to be disappearing from StartEngine (see a link to the BOXX funding page mentioned in this announcement as an example).
The fact StartEngine does not defend shareholder interests and there is no practical way for small retail investors to defend their interests (legal fees are expensive) makes StartEngine more attractive for scam artists, compared to cases when there is professional investment management.
What could be done better on StartEngine and Crowdfunding Investing in general?
I find SPV/Syndicate Investment Model as Angelist offers much better as there is a professional investor with skin in the game, experience, and resources to fight to maximize returns for investors. There are Management Fees involved which are not cheap but which I think are well worth it with early-stage investment. There is also additional friction needing to apply to join Syndicate making it more practical for larger investment sizes compared to what many Crowdfunding investment campaigns operate with.
There is perhaps the opportunity for less expensive, more automated investment management similar to what Groundfloor doing with Real Estate Investment and investment minimum as little as $10.
If that sounds heavy and complicated it may be. At the very least StartEngine could provide space for investors (and potential investors) to discuss the company they invested in – share good news or concerns, which in case of a need could help investors to organize to defend their interests. Currently, as I understand it, StartEngine only allows Investors to communicate to shareholders, who can respond with comments – in the end, though it is the Startup raising money that is in control.
I think this is a rather deliberate choice as it is Startup raising funds which is the primary customer of platforms like StartEngine and empowering “crowds” to speak their mind may interfere with raising the money.
If not StartEngine though, there might be a business opportunity to build something similar to Glassdoor but focused on crowdsource information about crowdfunding investment opportunities, founders, etc.
AngelList is a great alternative but most all the offerings you need to be an accredited investor to participate. Fundrise just created a venture fund with the minimum $10 characteristics you mention. Republic also created the Note fund for diversification at low entry. We list a few here: https://www.fundwisdom.com/investors/funds and let you filter if you are not accredited.
Not really feeling safe providing my social security number, right away.
First of all, this is based on my own experience and also my conversations with VCs and experienced people.
1. They get you signed up and in the contract it doesn’t say anything about your commitment to bringing a set number of investors or amount of investment. Then, they ask you to convince them that you will bring the first $300K to the campaign by yourself. If your plan is not convincing for them, they excuse themselves and cancel your campaign after weeks. So, don’t waste your time.
2. It’s very expensive. They’ll take 3.5% of your company plus $70k (based on $1.07M goal) for just listing you on their website. Also, they force you to your lackluster cap table software.
3. Every single VC I talk to, literally tells me if we raise money with any crowdfunding platform, they won’t be interested in investing anymore. Not sure why, but it is what it. You raise CF, you should expect to raise the next rounds with them forever.
4. It takes days to get an answer from them. They have internal communication issues.
5. They’re extremely rude and unprofessional. Trustpilot doesn’t allow explaining.
I would say, stay away from these crowdfunding platforms. Go straight to VCs, angel investors, or use kickstarter or indiegogo so that you don’t use anything. You’ll keep your company and grow. You’ll just have to give your backers some perks. They deserve it!
The salesman is a good guy though. He doesn’t belong there.