July 25, 2023

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.  

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