GrowthFountain is an investment crowdfunding platform using Reg CF to offer investments in startups and small businesses to anyone, and with low minimums (usually $100). Selection is limited, but some investments offer a novel revenue share that may appeal to investors looking for cash flow.
- Low-minimum investments, open to non-accredited investors
- Detailed and digestible investor presentation
- Easy-to-understand revenue-share model for some investments
- Relatively low number of active investments
- High risk, low liquidity
- Valuations entirely set by offering companies
- $10 fee per investments
GrowthFountain is a NY-based Title III Funding Portal registered with the SEC and governed by FINRA.
Types of investments GrowthFountain offers
GrowthFountain 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).
What do you get when investing with GrowthFountain?
Currently companies raising on GrowthFountain can either offer common stock or issue debt as a revenue-share agreement. Under the revenue share, the company pays investors 5% of sales (starting in the second fiscal year) until the investors have received 2X their original investment.
GrowthFountain fee structure
GrowthFountain charges investors $10 per investment (which on the one hand seems modest; on the other with a $100 minimum that's a healthy bite.)
Potential returns and cashflow
With common stock investments, there are typically no dividend payments or distributions, and except under very limited circumstances, the investment must be held for at least 12 months, with minimal expectation of any market after that. Most startup investments lose some or all of their value.
The revenue share model is clever, and is similar to some of the investments on fellow Reg CF portal NextSeed, and it's obvious why it's appealing to businesses facing unpredictable cash flow, especially since no payments are due until the second full fiscal year (and one year of forebearance is allowed). As a quick rule of thumb to get an approximate IRR equivalent, you you can take the multiple (in this case 2X), raise it to 1 divided by the term in years, and then subtract one. For example, if the business pays the full 2X over 4 years, the equivalent IRR is 2^(1/4) - 1 = 18.9%. If it takes 6 years to pay, the return drops to 12%, and if it's 8 years the return is 9%.
Breadth of offerings on GrowthFountain
GrowthFountain has four open investments at the time of this writing, spread geographically and across industries.
Regulatory framework and due diligence expectations
GrowthFountain is an SEC registered Title III Funding Portal, which means they are subject to a range of rules and obligations around investor education and due diligence. All companies offering investments on GrowthFountain will have been through background checks of key officers and owners, and there are clear links provided to the relevant SEC filings made by the offering company. Prospective investors also have access to online forums to talk with other investors, and an online channel for asking questions of the company raising funds (and viewing answers of prior questions from others).