SeedInvest was founded in 2011, and formally launched in 2013. Seedinvest’s founders participated in discussions with the SEC and Congress to help pass the 2012 JOBS Act, and is one of the few platforms to offer the full crowdfunding trifecta of Reg D, Reg A+ and Reg CF investments.
SeedInvest advertises that they accept just 1% of the startups that apply to be listed on their site, yet still offers a nice selection of products and companies from multiple industries. SeedInvest has raised more than $100M for more than 150 startups.
Types of investments SeedInvest offers
Investments on SeedInvest are for startup companies at various stages, from very early (“seed rounds”) through more standard venture financing rounds (“Series A”, “Bridge”, and “Growth” rounds). 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).
While the limit for raising funds using Reg CF is $1M per year, companies are permitted to do “side-by-side offerings” which means that in addition to what’s being raised under Reg CF, they can also simultaneously raise under Reg D, which has no limits on the amount that can be raised. (You can see an example of a recent side-by-side offering in the screenshots below.) The Reg D portion of the offering typically has a much higher minimum (in the example below it’s $20,000), so if you invest less than the minimum you’re placed into the Reg CF offering, and if you invest more you’re placed into the Reg D offering. Investors should be sure they understand which kind of offering they’re investing in before proceeding.
SeedInvest also offerings investments in companies raising under SEC Reg A+, which is generally used by later-stage companies looking to raise higher amounts of money (up to $50M).
In addition to individual company investments, SeedInvest offers one of the most affordable ways to get broad exposure to a number of startups through their Auto Invest feature. Investors indicate the total amount they want to invest, and SeedInvest then automatically allocates that across 10-25 curated startups over time. The minimum investment is currently $2,000, which would then be spread as $200 into 10 startups.
As with several other Reg CF platforms, many offerings also include investor perks at various levels of investment.
What do you get when investing with SeedInvest?
The specific security types vary by investment, but usually investors receive equity, preferred equity, a convertible note, or the more recent variant, a SAFE (simple agreement for future equity), which has some characteristics of a convertible note, but is not actually a debt instrument. All of the offerings on SeedInvest appear to be direct investments, rather than through a special-purpose entity like an LLC (SPE investments are not permitted under Reg CF, but are common among Reg D platforms).
How does SeedInvest make money?
The only fee SeedInvest charges investors is a 2% non-refundable processing fee (up to a maximum of $300) per investment (and although it’s “non-refundable”, the fee is indeed refunded if the company fails to meet their fundraising goal). SeedInvest does not charge any carried interest to investors.
SeedInvest does charge several fees to offering companies, which ultimately has an effect the amount of funds the company actually receives from their fundraising. These can vary, but include a placement fee, an allocation of equity (or warrants to buy equity down the road), and legal fees covering due diligence, escrow, and other fees.
Potential returns and cashflow
Investments on SeedInvest are high-risk investments in startups. Most investments have no explicit expectation of payments, dividends, or other cash flow. Except under very limited circumstances, Reg CF investments must be held for at least 12 months, with minimal expectation of any secondary market for the investment after that. Most startup investments lose some or all of their value. While some investors achieve excellent returns from startup investing, that is a rare outcome and requires substantial diversification over time combined with very careful investment selection.
Breadth of offerings on SeedInvest
Despite advertising that they accept fewer than 1% of companies that apply to raise funds, SeedInvest manages to offer one of the broadest selections of investments of any investment crowdfunding platform. There are typically dozens of investments open to anyone, and even more available to accredited investors. SeedInvest also lists companies that are “testing the waters” to gauge prospective investor interest.
Once you register on the platform, SeedInvest sends regular emails with details about offerings, and their emails tend to be quite detailed, with offers to send further information upon request.
Regulatory framework and due diligence expectations
SeedInvest is among the very few platforms offering investments through SEC Reg CF, Reg A+, and Reg D. A consequence of the specifics of those regulations means that SeedInvest includes a number of affiliates and partners, which can be a bit confusing to wrap one’s head around:
- SeedInvest Technology, LLC is the entity that operates the website
- SI Securities, LLC, is an affiliate of SeedInvest and a registered broker-dealer
- North Capital Private Securities Corporation is also a registered broker-dealer (you can see their information via FINRA’s Broker Check here), but is a separate entity with a contractual relationship with SeedInvest
- SI Portal LLC is a Title III Funding Portal
To add to the confusion, the particulars of the due diligence and screening process can vary quite a bit based on the type of investment. From the SeedInvest website:
All Regulation D and A+ offerings marked as "Vetted" have successfully gone through our complete due diligence process, which includes internal business due diligence and outsourced legal and confirmatory due diligence. Such investment opportunities are offered via SI Securities or NCPS, each a registered broker-dealer. Investment opportunities offered under Regulation CF have not been fully vetted and are offered via SI Portal, a registered funding-portal. Such investment opportunities have gone through a screening process with SI Portal and legal due diligence by an independent third-party.
While that implies that Reg CF offerings are subject to less scrutiny, because most of them are “side-by-side” offerings, those companies do indeed end up going through the full vetting process. The upshot here: prospective investors should be careful to note whether the investment they’re considering is listed as “Vetted” or not to make sure they’re clear about how much review the offering has received from SeedInvest.
You should of course do your own due diligence (including research outside of what you find on the platform.) There’s more about broker-dealers and other platform types over on our blog.
SeedInvest emphasizes their role in curating and selecting investments, stating that they accept fewer than 1% of companies that apply. While that should not be a substitute for your own due diligence before making any investment, it is a different approach than some other platforms offering similar investments, and which function more like marketplaces, offering only minimal legal due diligence such as criminal background checks.