Review: Should You Invest With MicroVentures?

During the financial crisis of 2009, Bill Clark founded MicroVentures. Before this, he served as a credit manager for companies like Dell (NYSE:DELL), PayPal (NASDAQ:PYPL) and GMAC.

MicroVentures Review: Should You Invest With MicroVentures?

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But when the economy imploded, he realized that there was a need to create an online platform to help struggling small businesses raise capital from the public.

Growth was strong from the start. And over time, MicroVentures has been able build a solid system. Consider that since inception more than 110,00 users have invested over $220 million across 400 companies.

If you’re looking to get involved in equity crowdfunding, however, is MicroVentures the right platform for you? And how can you register for MicroVentures and invest in its startup offerings?

MicroVentures Review

Like any other financial services firm like TD Ameritrade (NASDAQ:AMTD) or Charles Schwab (NYSE:SCHW), MicroVentures is a registered broker dealer and is a member of both FINRA and SIPC. For the most part, the company’s site offers investors two opportunities:

  • Primary Investments: This is where a company issues new securities to investors to raise capital.
  • Secondary Investments: This is where existing shareholders of startups sell their shares to other investors. The company does not receive any proceeds from these transactions.

There are also two types of investors. One is an accredited investor, who meets certain financial requirements. That is, he or she has income over $200,000 for the past two years (or joint income of over $300,000) or has a net worth of more than $1 million (this does not include the value of a primary residence).

And yes, for those who do not quality, they are considered non-accredited investors.

For regulation crowdfunding deals, both accredited and non-accredited investors are allowed to participate. But the deal size can only be as much as $1,070,000 annually. In other words, these deals tend to be fairly small. For what it’s worth, Regulation A+ equity crowdfunding campaigns allow for the far-higher investment ceiling of $50 million per year. Unfortunately, I didn’t encounter Reg A+ investments on MicroVentures.

Some examples of crowdfunding deals include Our Life Foods (a Cajun-inspired packaged foods and beverages company) and Roula (a high-end bike concierge platform). You can find a list here.

What about larger deals? You can certainly do so as long as you are an accredited investor. One type of deal is known as a 506(b) primary offering, which is usually for a seed or Series A round (this is the first institutional round of capital, such as from venture capitalists). Next, there are 506(b) secondary offerings. They are for more mature startups, such as Airbnb or SpaceX. And indeed, MicroVentures has played host to many now-household names, such as Slack (NYSE:WORK), Lyft (NASDAQ:LYFT) and even Uber (NYSE:UBER).

To sign up as an investor, you will fill out an online form. Although, if your are accredited, then you will also talk to a representative from MicroVentures. There are no fees for registering. Instead, the firm makes its money by charging commissions on the transactions on the marketplace.

In terms of paying for shares, you can use a credit card, your bank account or wire transfer. However, you cannot use a regular check or cryptocurrencies.

What’s more, the minimum purchase amount is $100, which is ideal for everyday investors but not for accredited investors.

Bottom Line on MicroVentures

Investing in startups can get complicated. Keep in mind that there will often be a purchase agreement that is chock-full of clauses that deal with future dilution, shareholder rights, notifications and so on. There are also various types of securities, such as preferred stock, convertible notes and crowd notes. These provide different levels of protections for investors, such as if there is an acquisition or liquidation.

You definitely want to read the documents. You might also want to get a book like Venture Deals (by venture capitalist Brad Feld and Jason Mendelson) that goes overs the terms of investment contracts.

When selecting an investment, you will have access to the business plan, the presentation deck and the deal documents. And while you can get help from MicroVentures, the reps are not authorized to help with your decision. This is completely up to you.

And finally, these types of private investments are very risky. It’s typical for early-stage companies to fail within the first few years of its existence. This is why you that you should not allocate a large amount of your portfolio to these types of investments.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence BasicsHigh-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.  As of this writing, he did not hold a position in any of the aforementioned securities.

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