Are you looking for startups to invest in?
That’s great if you are. Just remember that like investments in the stock market, they’re not a sure thing, especially during this unique period of coronavirus-related volatility.
Dr. Zachary Cohle, Assistant Teaching Professor of Economics at Quinnipiac University, spoke to InvestorPlace about equity crowdfunding. Specifically, Dr. Cohle spoke to how the coronavirus could impact equity crowdfunding.
“Due to the shutdowns related to Covid-19, the ability for firms to raise capital will be significantly weakened,” says Dr. Cohle. “For those who were once looking to invest, the Covid-19 virus may prevent investment in two ways. First, the uncertainty of one’s own income in the coming months will make people less likely to tie up money in long-term investments. Second, the uncertainty of businesses during the next few months will make the expected payoff from any investment decrease.”
That said, if you understand the risks involved, you might want to consider the equity crowdfunding platform StartEngine.
StartEngine was founded in June 2015 after the Securities and Exchange Commission enacted Title II of the JOBS Act. However, it was the enactment of Title III, which allowed companies to make securities offerings to non-accredited investors, that really got things rolling.
In the four years since, StartEngine has become one of the country’s leading equity crowdfunding platforms, raising more than $150 million from more than 200,000 investors to help more than 300 companies grow.
Currently, it has 84 investment opportunities on its platform. Here are what I believe are some of the best startups to invest in on StartEngine.
StartEngine Startups to Invest In: GolfBoard
Amount Raised: $1.2 million
Amount Raised Per Investor: N/A
Price Per Share: $1.25
Minimum Investment: $500
Leading off my selection of StartEngine startups to invest in, I just had to go with a sports-related private investment. Not only do I love sports, in general, but I’ve been an avid golfer for many years, so the surfboard-like GolfBoard immediately caught my attention.
To date, the Bend, Oregon company has sold nearly 3,000 GolfBoards which are in use on more than 275 golf courses in 11 countries around the world. As a result of its success with the GolfBoard, Sol Boards Inc. are looking to get into the electric scooter marketplace.
Frankly, given the novel coronavirus and the need for people to social distance, I think the GolfBoard is ready-made to help restore the game of golf as a recreational activity. Do you want to be playing squash or some other close-contact sport when you can stay six feet from your playing partners while getting around the course in record time.
Think about the economics for a golf course operator:
It costs $175 per month to lease. According to the GolfBoard campaign, courses generate $1,500 in incremental revenue each month from its use. As a golf course owner, you can get your entire investment back within four months. Everything after that is found money.
As an investor, how can’t you be interested in a product that promotes social distancing, is better for the environment, is fun to use, and generates an excellent return on investment? I say, you can’t.
The current investment is only open to accredited investors. It plans to do a Title IV offering in the future at $2.05 a share that’s open to non-accredited investors.
Like all investments, I recommend you do your due diligence.
Amount Raised: $852,060
Amount Raised Per Investor: N/A
Price Per Share: $60
Minimum Investment: $60
Long before the U.K. craft brewer invaded the U.S. market in 2017, the duo of founders, James Watt and Martin Dickie, were busy raising funds for their business through equity crowdfunding. In 2010, the duo completed its first of many Equity for Punks equity raises, selling 639,400 pounds worth of BrewDog shares. Since then, the craft brewer has convinced more than 120,000 investors to invest in its dreams of global domination.
BrewDog USA launched its first beer in America in June 2017. Its 42-acre site in Ohio has a 100,000 square-foot brewery, a taproom and restaurant, the DogHouse craft beer hotel, and the Overworks sour facility.
The current brewery has an annual capacity for 426,000 barrels of beer with the ability to build a second brewhouse to accommodate more growth.
BrewDog USA’s first equity crowdfunding raise was in 2016. Its Equity for Punks USA raised more than $7 million or an average of approximately $875 per investor. Its second in 2018 raised more than $2.2 million or $355 per investor.
Currently, it is looking to raise up to $39 million, which will be used to fund a West Coast expansion, build BrewDog outposts in smaller towns across America, and open the American arm of BrewDog Distilling, producing gin, vodka, and whiskey.
The biggest issue facing BrewDog USA is that it can’t seem to hang on to leadership. In January 2020, Jason Block was named chief executive officer (CEO) of the company, the third CEO in less than a year.
That’s likely why the company’s fundraising efforts have gone rather slowly. Open until December 31, I would take your time getting to know the Ohio-based business.
Amount Raised: $4,746,983
Amount Raised Per Investor: N/A
Price Per Share: $11.25
Minimum Investment: $506.25
If you’re going to bet on equity crowdfunding, there’s an argument to be made that you’re better off betting on the platform that provides the investments, rather than on the 84 investments currently available through StartEngine.
They used to say the same thing about mutual funds. That it was better to bet on the mutual fund provider than it was the provider’s various funds.
That said, I don’t think you need to be so cynical about the private capital investments raising funds on StartEngine’s platform. A few of them will be wildly successful, most will do okay, and several will flame out spectacularly.
The team that Howard Marks (CEO) and Ron Miller have put together are first rate. Marks started the business in 2014 after spending three years operating a startup accelerator in Los Angeles. Both he and Miller were experienced entrepreneurs and investors; the duo realized how difficult it is for entrepreneurs to raise capital, so they created the StartEngine platform to help alleviate the problem.
More than $150 million in funds raised later, StartEngine is looking to raise up to $40 million in capital for marketing (31% of net proceeds), product development (13%), operations (5%) and the remainder (51%) to cash reserves.
Open to both accredited and non-accredited investors, if you’re considering one of the investments on the StartEngine platform, you might want to think about making a parallel investment in StartEngine, the company.
Ultimately, if the company doesn’t succeed, the platform disappears, and that would be bad for equity crowdfunding.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
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.