•  Venture

StartEngine Review

StartEngine is one of the largest investment crowdfunding platforms, using Reg CF and Reg A+ (as well as Reg D) for certain side-by-side offerings) to offer investments in startups to anyone, in some cases for as little as $100. The selection is broad, and spans a wide range of industries from fashion to health care to electric vehicles, but investors should know curation is very limited, so investment quality can vary widely among available offerings.

StartEngine

  • Investment Types: Venture
  • Sectors: Cleantech, Food/Beverage, Robotics, Sports, and Transportation
  • Minimum Investment: $100
  • Open to all investors
 Pros
  • Open to non-accredited investors
  • One of the largest Reg CF investment platforms, with very wide selection of available investments (60+ as of this writing)
  • Low investment minimums
  • Very detailed investor presentations, with easy to find Q&A history
  • Many investments also offer perks at various investment levels
 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
  • Confusing network of related entities
  • Accepts investments via credit card, which seems irresponsible

Overview

StartEngine is a Title III Funding Portal (aka Reg CF) registered with the SEC and governed by FINRA, and they also operate an entity for raising money via Title IV (Reg A+). While some investment crowdfunding sites take a highly curatorial approach to selecting companies, StartEngine 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.

Is StartEngine Legit?

Yes, StartEngine is “legit” in the sense that it is a legitimate, regulated business and is a legit investment option open to anyone over the age of 18.

StartEngine is among a growing crop of crowdfunding and online alternative investment platforms, most of which have launched in the wake of the 2012 JOBS Act.

In the second half of 2017, StartEngine began rapidly accelerating their number of new offerings, and in early 2018 overtook Wefunder for total new Reg CF offerings. The company reported generating more than $4.9 million in revenue in 2018, with more than $80 million invested on the platform from 180,000 registered users.

You can invest in StartEngine using a Self-Directed IRA or 401(k) like the ones offered by our friends at Rocket Dollar.

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Types of investments StartEngine offers

StartEngine 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). StartEngine’s investment span a wide range of industries and verticals, from apparel to mobile apps, to solar, to electric vehicles, and much more.

Recently StartEngine also began offering “Initial Coin Offerings”, known as ICOs, which leverage the emerging cryptocurrency ecosystem. Cryptocurrencies and ICOs are very new, and investors should exercise extra caution while exploring them as investments. Notably in addition to startups and ICOs, StartEngine currently offers investors the opportunity to invest in StartEngine itself using a Reg A+ offering. These ICOs come in the form of Security Token Offering (STO), or cryptocurrencies representing equity in a company. Tokens and cryptocurrencies are still very new additions to the investment landscape, and investors should exercise caution and be sure to fully understand what they’re investing in.

What do you get when investing with StartEngine?

The specific security types vary by investment, but usually investors receive common stock or a convertible note. All of the offerings on StartEngine appear to be direct investments, rather than through a special-purpose vehicle like an LLC. Investors in ICOs may receive “token” units denominated in a cryptocurrency.

How does StartEngine make money?

There are no fees to investors. StartEngine charges companies that raise money on their platform 6-8% of the amount raised. However, issuers can offset these costs by charging a processing fee of 2.5% to investors which is charged on top of the price of shares.

Potential returns and cashflow

Investments on StartEngine 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.

Breadth of offerings on StartEngine

StartEngine has a wide selection of investments available (more than 60 as of mid 2019), but as covered below StartEngine does not curate their offerings at all. So while some other platforms (such as SeedInvest and Microventures) advertise that only a small percentage of companies applying ever make it in front of investors, StartEngine takes the opposite approach (similar to Wefunder). Offerings span a range of industries and types of companies, including some like sportswear, movies – and even a lice clinic – that rarely come to mind when thinking about “startups”, but may be able to rally enthusiastic customer bases to participate in their offerings.

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), StartEngine clearly takes a different approach, performing only the minimum due diligence required to screen out “bad actors” and ensure compliance with SEC filings.

That approach does mean there’s a lot of investment choices available on StartEngine, but it’s an important difference in approach that prospective investors should be aware of in considering investments and performing their own due diligence.


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