The equity crowdfunding site, Republic, describes the Republic Note as “a new kind of asset that shares profits when startups and private equities that raise with Republic get acquired or go public.
At 12 cents a note and a minimum investment of $100, here’s why investors ought to take a closer look at this exciting opportunity.
What the Heck Is a Republic Note?
I know, on the surface, it sounds like currency from a third-world country. However, I can assure you that as far as equity crowdfunding portals go, Republic is at or near the top. From a presentation standpoint, very few can match Republic. It’s top-notch.
Okay, I’m getting serious now.
When you invest in a Republic Note, you are essentially betting on Republic and the companies raising funds on its financing portal.
Cutting to the chase, Republic noteholders receive a share of the profits from successful exits of companies that raised funds through the equity crowdfunding portal. It’s a simple concept. If Republic wins, you win.
In addition to getting a financial stake in Republic’s success, you also get a lot of perks.
Most of the time, when a crowdfunding site is talking about perks, it means free t-shirts and beer—that kind of benefit.
However, Republic Note provides you with tangible benefits that include getting notified the minute an equity crowdfunding campaign goes live on the portal. Other perks include automatic updates of your investments after they’ve closed, an opportunity to invest in startups even if they’ve already sold out, a bonus on your next Republic investment, and so much more.
I think the important thing is Republic understands that you’re investing through its portal to make money for you and your family. You’re not there for a discussion around the company watercooler.
Time is money.
How Does the Republic Note Work?
Not wanting to waste your time, read this white paper from June 2020 to understand the finer details of the Republic Note. For those of you that need a little handholding, let me explain.
The most important thing to know is how Republic is compensated because that explains what Republic noteholders will share in.
“Republic operates a public investment platform for retail investors from all backgrounds and a private investment platform for institutional and accredited investors only,” states the June 2020 White Paper.
“Each platform typically receives two forms of compensation for their services: a cash commission or a fee, and a potential upside in the companies they help finance in the form of securities or carried interests.”
Okay, without getting into the weeds, Republic noteholders will be part of equity crowdfunding campaigns through Republic that are expected to raise $200 million in 2020 and more than that in 2021.
Republic takes a portion of the funds raised as a cash fee and the remainder in the form of shares or carried interest. In both cases, Republic only wins if the company that raises the funds has a successful exit (i.e. it sells itself to another organization for cash, shares, etc., or it successfully recapitalizes its business).
“Each Republic Note entitles its holder to a distribution right to Core Proceeds. As of June 2020, Core Proceeds consist of (i) 100% of future proceeds to be realized from Republic Crowd-Invest’s interests in over 160 startups raising funds under Regulation Crowdfunding and Regulation A, and (ii) 25% of future proceeds to be realized from Republic Private Capital’s carried interests in over 30 portfolio company investments held through managed funds, with more companies and investments being added every week,” according to Republic’s white paper.
So, let’s say Company ABC raises $500,000 through Republic’s public platform, which includes accredited and non-accredited investors. The portal earns a fixed-rate cash commission. That goes entirely to Republic. It also receives a 2% fee in the form of securities in the company raising capital. That’s 2% of $500,000 or $10,000 in stock.
If the company raising funds delivers a successful exit in the future, 100% of the proceeds based on its prorated amount of $10,000 would go to Republic noteholders.
If Republic raises $500,000 on its private platform for accredited investors only, 25% of the carried interest (the share of carried interest it’s entitled to) would flow to Republic noteholders.
Republic will issue up to 800 million Republic Notes at 12 cents each for a maximum of $96 million. Republic noteholders do not gain ownership in either Republic or the companies raising funds. They’re merely buying a stream revenue. In that sense, it’s much like a licensing arrangement.
The Bottom Line
If you’re a non-accredited investor and looking to expand your horizon beyond the public markets, the Republic Note is an excellent way to dip your toe in the water. It provides diversification, a sense of ownership without the volatility of common stock ownership and can be bought and sold on the private markets one year after delivery.
If you’re an accredited investor who doesn’t want to take on the specific company risk attached to each equity crowdfunding campaign, the Republic Note is an excellent way to make a sizable investment while being able to sleep at night.
Sure, this isn’t a guaranteed investment. You must be willing to lose 100% of your capital. However, if you view your investment as if it’s an expensive vacation, I think you’ll be more than happy with your return.
I like the Republic Note.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.