Did you ever wish to be in the shoes of a Shark Tank investor? You’ll appreciate our StartEngine review. Thanks to StartEngine, that is now possible, minus the 10-minute sales pitch and adrenaline-filled ownership negotiations.
It all became possible after the JOBS Act made it legal for non-accredited investors to participate in private company investments.
Thanks to StartEngine’s online platform, you can participate in various forms of equity crowdfunding (Ref CF, Reg A, and others) while respecting some investing limits. Venture capitalists and wealthy individuals are no longer the only ones who can access these investments.
Keep in mind that equity crowdfunding is very risky because many startups fail. You should conduct thorough due diligence and understand the risks involved. Below, you will find everything you need about equity crowdfunding and StartEngine.
Table of Contents
What Is Equity Crowdfunding?
Equity crowdfunding is a method of raising capital where a company offers shares of its equity (ownership) to many investors. Typically, it is done through an online crowdfunding platform. It allows startups and small businesses to raise funds by selling securities (equity shares or debt) to a pool of investors rather than relying solely on traditional sources like venture capitalists or banks.
It is Kickstarter with equity. Equity crowdfunding is regulated by securities laws, such as the JOBS Act in the US, which aim to protect investors while enabling this form of capital raising. Despite this, it comes with many risks. How does this StartEngine review pertain to equity crowdfunding?
1. Risk of Failure
Startups have a high risk of failure. There is no guarantee of success or future returns, even if the funding target is met. Investors could potentially lose their entire investment. Let’s continue with this StartEngine review.
2. Equity Dilution
When a company issues new shares through equity crowdfunding, it dilutes existing shareholders‘ ownership stake. Not only that, the value of your shares can decrease over time, even if the company goes to an IPO.
There is no guarantee that the stock price will return to your original purchase price. Buying early doesn’t mean that the price will only increase. We’ll cover how this relates to our StartEngine review.
3. Lack of Liquidity
Investors may have limited or no options to sell their shares for years. There is a risk of the investment being tied up for a long period without any returns. StartEngine does have an answer for this issue. More on that later in this StartEngine review.
4. Fraud Risk
There is always a risk of fraud, whether a startup or a multinational company. For that reason, investors need to conduct thorough due diligence and be wary of any red flags or unrealistic claims. Hence our StartEngine review.
StartEngine Review of Useful Definitions
Regulation A (Reg A): Exemption from registration requirements with the SEC allows companies to raise up to $75M from public investors in 12 months.
Regulation Crowdfunding (Reg CF): SEC exemption that allows companies to raise upwards of $5M from public investors through online crowdfunding platforms over 12 months.
StartEngine Review of Its History
StartEngine was founded in 2014 by Howard Marks in Burbank, California. The platform launched its equity crowdfunding platform in 2016 after the JOBS Act made it legal for non-accredited investors to participate in private company investments. It is registered with the SEC and operates within the framework of US securities laws.
For the moment, StartEngine only accepts US residents due to regulatory constraints. Since its launch, StartEngine has facilitated over $500M in investments across more than 500 offerings, with over 760,000 prospective investors on the platform.
It has become one of the largest equity crowdfunding platforms in the US, often receiving top investment opportunities from startups seeking funding. Below are all the features of this StartEngine review.
Startup Investing
First, in our StartEngine review, investors create an account on StartEngine’s website or mobile app and browse through various startup investment opportunities across different industries. They can find the company’s pitch, financials, and other materials in the offering. All the legal documentation and payment processing is done with StartEngine.
On the main dashboard, companies can be filtered by category (aerospace, agriculture, biotech, energy, financials, healthcare, and many more) and status (most funded, closing soon, newest, and most momentum). There is also a tab for news regarding these companies. It is very easy to navigate on the platform and to find useful and relevant information regarding the company.
You will find
- Price per share
- Current valuation
- Deadline to invest
- Funding goal
- Minimum and maximum investment
- Offering and asset type
- SEC recent filing
- Offering circular and memorandum
- Financials
- Risks
- Loyalty bonus (if applicable)
StartEngine Private
StartEngine Private is exclusively for accredited investors (must meet certain income or net worth requirements set by regulators). It allows them to invest in top venture-backed startups and private companies. Investors can potentially invest alongside renowned venture capital firms like Andreessen Horowitz, Sequoia Capital, etc.
How does it work? StartEngine Private operates as a series of limited liability companies (LLCs), each representing a distinct investment opportunity in an underlying startup or private company. StartEngine facilitates the entire investment process, including due diligence, legal documentation, and shareholder management for private company investments.
As of May 2024, some of these private companies and potential unicorns include Fanatics, Airtable, Lambda Labs, Ramp, H20.ai, SambaNova, Attentive, Cerebras, Outreach, Harness, SingleStore, TAE Technologies and ThoughtSpot. The platform is expecting more investment opportunities in the future. There’s more in this StartEngine review.
StartEngine Review of Marketplace
StartEngine Marketplace is a new service that StartEngine launched. It allows investors to buy and sell shares in startups and private companies raising capital through equity crowdfunding regulations like Regulation A (Reg A) and Regulation Crowdfunding (Reg CF).
Equity investing tends to be illiquid because it may take investors some time to find a buyer for their shares. Thanks to the Marketplace, investors can freely buy and sell shares, subject to certain limitations (12 months after a Ref A or CR offering).
However, to enjoy the StartEngine Marketplace, investors must be part of the Venture Club (Previously known as the Owner’s Bonus). Let’s look more at the Venture Club in depth in this StartEngine review.
Venture Club/Owner’s Bonus
What is this Venture Club? A StartEngine review finds it has extra perks for premium members who pay $275/year. First, members earn 10% more shares on any investments in companies raising capital on StartEngine.
Second, Venture Club members get a 48-hour early access to certain offerings before making them available to the general public. Lastly, this exclusive membership gives access to premier concierge services. There are over 28,000 Venture Club members.
StartEngine Collectibles
StartEngine review of its latest offering is its collectibles platform. It allows investors to invest in and trade shares of alternative assets like blue chip art, wine, sports cards, comic books, watches, collectible coins, NFTs, and other collectibles.
These assets are fractionalized into shares that investors can purchase through StartEngine’s online platform. It operates under Regulation A+ and Crowdfunding rules, allowing accredited and non-accredited investors to participate.
Did you know wine outperformed the S&P 500 in the last 20 years? Some wines have rewarded investors with a return exceeding 800%. Wine isn’t the only collectible outperforming the S&P. Contemporary art averaged a 14% yearly return between 1995 and 2020. How crazy is that? Comic books, watches, and trading cards are a very interesting market with tons of potential. For more information, you can visit StartEngine’s Collectibles page here.
StartEngine Review of Limits
According to the SEC’s regulations, accredited and non-accredited investors are subject to investment limits on StartEngine for all the abovementioned investments in this StartEngine review.
Non-accredited Investors with an annual income or net worth below $107,000 can only invest 5% or $2,200 (whichever is highest) of the lowest between their net worth or annual income.
On the other hand, investors with an annual income or net worth surpassing $107,00 can invest a maximum of 10% of their annual income or net worth (whichever is lowest). The maximum annual investment is $107,000.
StartEngine Review of Fees
Every platform must make money somehow. In a StartEngine review, it’s simple. The platform makes the majority of its money by charging fees to the company raising the funds. They can add up very quickly and exceed tens of thousands of dollars, depending on the raised amount and the method of disbursement.
For investors, startup investing is free unless the company raising capital charges a 3.5% processing fee. As for the secondary market, opening an account is free, but a 5% transaction fee is charged when the shares sell.
Final Thoughts: StartEngine Review
To conclude, our StartEngine review finds it provides accredited and non-accredited investors the opportunity to invest in private equity through startups and private companies. The platform’s recent expansion plans included a marketplace to buy and sell their shares to make the market more liquid. StartEngine also recently set up its Collectibles platform, where certain alternative investments can be found.
You’d be surprised that some have excelled in the last few decades. Unfortunately, StartEngine is only for American residents, and there are limits to how much you can invest depending on your investor status. Regardless, it remains an interesting platform for those who want to diversify their holdings and get exposed to more risk.
If you want to learn more about profiting from the stock market, head to our free library of educational courses. We have something for everyone, including trading options for those with small accounts.
Frequently Asked Questions
Yes, the platform is legitimate and safe. It is well-regulated and registered with the SEC to provide Reg CF and Reg A offerings.
Startups tend to be riskier than stocks and funds. Many companies go bankrupt, and losing your initial investment is a possibility. However, if the company makes it, returns can be very high.
For $275/year, Venture Club members earn 10% more shares on any investment and get a 48-hour early access to certain offerings. They also have access to a premier concierge service.
