Netcapital

Summary

Netcapital is an investment crowdfunding using Reg CF (and Reg D for parallel offerings) to offer investments in startups to anyone, in most cases for as little as $99. The selection is fairly broad, but investors should know curation is very limited to required background checks.

  • Website: https://netcapital.com
  • Investment Types: Startups/Business Financing
  • Security Types: Equity
  • Sectors: Clothing, Mobile, Pets, Residential Real Estate, and SaaS
  • Minimum Investment: 99
  • Open to all investors

Pros

  • Reasonable selection of available investments (7 as of this writing), all open to non-accredited investors
  • Low investment minimums
  • Very detailed investor presentations, with easy to find Q&A history

Cons

  • Startup investments are inherently risky and illiquid
  • No curation or due diligence of offerings (beyond minimum background checks and anti-fraud checks)
  • Valuations set entirely by company raising money

Netcapital logo

Overview

Netcapital is a Title III Funding Portal (Reg CF) registered with the SEC and governed by FINRA, and they also have an affiliation with a broker-dealer to offer Reg D investments as “parallel offerings” to accredited investors. While some investment crowdfunding sites take a highly curatorial approach to selecting companies, Netcapital is among the platforms with more of an open marketplace philosophy, with offering companies subjected only to minimal due diligence to screen out “bad actors” and ensure baseline compliance with SEC rules.

Types of investments Netcapital offers

Netcapital offers investments in startups and growth-stage companies. Earlier-stage startups are generally riskier, though may offer the potential for a greater return in the long run (that is, if they return anything at all). Netcapital’s offerings span a wide range of industries and verticals, from drones to films to mobile apps to a raceway.

What do you get when investing with Netcapital?

Netcapital currently only offers common stock investments, though investors should be aware they will not be listed on the company’s cap table, nor will they have voting rights. Via Netcapital’s entrepreneur FAQ:

All shares sold through Netcapital are held by our partner custodian who has the right and obligation to exercise all provisions, covenants, and other rights (including voting rights) of the securities by proxy. This means that there is only one investor on your cap table that represents all shareholders who invested in your company through Netcapital.

Netcapital fee structure

Netcapital does not charge any fees to investors (they collect 4.9% of the amount raised from the offering company).

Potential returns and cashflow

Investments on Netcapital are high-risk investments in startups and growth companies. There are no interest or dividend payments, and except under very limited circumstances, the investment must be held for at least 12 months, with minimal expectation of any market after that period. Most startup investments lose some or all of their value.

Regulatory framework and due diligence expectations

While some other platforms emphasize their curatorial approach to reviewing companies looking to raise money (like SeedInvest, which advertises that fewer than 1% of companies that apply are approved for listing), Netcapital takes a different approach, performing only the required due diligence required to screen out “bad actors” and ensure compliance with SEC filings.

That approach can increase investment choices available, but it’s an important difference in approach that prospective investors should be aware of in considering investments and performing their own due diligence.