Equity Crowdfunding / Startup Investing

[MachineGhost]

Here's the first round of companies I'm investing in:

WeFunder:
Beta Bionics -- bionic pancreas
Shapescale -- 3D scan and image of your body
Qmedic -- technologically up-to-date alert system for elderly
RocketBook -- traditional-style notebook that scans pages to cloud and is erasable in microwave
Italist -- shopping portal for genuine, luxury Italian botique goods from Italy
Veditz -- portal to provide paid mentoring and education for the deaf in their own language

StartupEngine:
Med-X -- safe, natural pesticide and magazine for regulated marijuana growers
Gigmor -- portal to find and directly book musical talent (yeah, the crony agent industry has yet to be disrupted, unbelievable)
XTI Aircraft -- autonomous VTOL business class planes
SweetShine -- all natural, flavored moonshine locally sourced and made in West Virginia
SnapWire -- portal to request custom photography needs from talent
SURKUS -- portal to acquire "talent" for ceremonies, premieres, club openings, Hollywood ballyhoo, etc.

SeedInvest:
DSTLD -- direct to consumer, high end premium clothing

What's everyone think? I am aiming with an eye towards scalability for big profits so I've no interest in small potato startups like donuts, local theatres, etc.. It's got to be worth my time to wait out the 7-10 years.

I put a below normal size investment into SweetShine because I question the scalability and ability to get national distribution away from the major liquor pseudo-monopolists, but it is more compelling opportunity than oh-yet-another craft beer brewery (that market is very oversaturated and ready to implode) or SF-only organic food delivery services, etc..

I'm undecided on Veditz. They seem confused about whether they're providing a deaf community or providing a portal for teachers of the deaf, deaf students, etc.. I question if the scalability is there also, but then the deaf community is very disconnected and isolated worldwide so if they pivot to the former, it may have potential. Will keep on watchlist.

[MachineGhost]

I'm shocked -- shocked! -- that Congress actually does anything useful.

Fix Crowdfunding Act

This bill amends the Securities Act of 1933 (Act) to increase from $1 million to $5 million the aggregate amount of securities sold to all investors by an issuer that qualify for the crowdfunding exemption from certain prohibitions relating to interstate commerce and the mails.

(Crowdfunding is a method of capital formation where groups of people pool money, typically composed of small individual contributions, and often via Internet platforms, either to invest in a company or to support an effort by others to accomplish a specific goal.)

The bill amends the Jumpstart Our Business Startups Act (JOBS Act) to declare that a crowdfunding portal shall have a reasonable basis for disqualifying issuers from offering securities through the portal if through a background check it has found that an issuer has made an untrue statement of a material fact, omitted to state a material fact necessary to avoid making misleading statements, or engaged in fraud or deceit. No intermediary (crowdfunding portal) shall be liable for an issuer's material misstatements and omissions unless, in connection with the offer or sale of a security, it knowingly made or omitted such statements or engaged in fraud or deceit.

The bill amends the Securities Exchange Act of 1934 to exempt crowdfunding securities transactions from its registration requirements.

The Investment Company Act of 1940 is amended to exempt from the definition of investment company, and so exclude from coverage by that Act, any issuer that, for the purpose of making a crowdfunding offering, holds the securities of not more than one issuer eligible to offer securities (a single-purpose fund).

The bill allows single-purpose funds to sell and offer for sale securities according to crowdfunding requirements, and considers them venture capital funds.

The Act is further amended to permit an issuer, before commencing a crowdfunding offering, to solicit non-binding indications of interest from potential investors in the prospective offering if:

no investor funds are accepted by the issuer, and
any material change in the information furnished during the actual offering from the information furnished during the solicitation of interest is highlighted to potential investors in the information filed with the Securities and Exchange Commission.

No enforcement action may be brought before May 16, 2021, against crowdfunding portals established under the JOBS Act.

https://www.congress.gov/bill/114th-con ... summary/00

[MachineGhost]

I changed my mind about DSTLD. I don't like their financials. They've never been profitable since inception several years ago, are not the originator of the ethically transparent direct-to-consumer concept and and they're not going to use the funds raised in a manner that is conductive to maximum growth in my view. Sometimes what's great for the consumer isn't great for the investor.

Instead, I'm investing in Hawaii Cider Company at WeFunder which plans to produce locally sourced, organic fruit hard ciders to their existring distribution network as well as offering a first-of-its-kind organic co-manufacturing facility to other local Hawaiian businesses. A real no brainer. It's a good complement to the West Virginia moonshine. Along with soda, beer and wine sales are declining as Millennials just don't drink that boring, fuddy duddy stuff.

So really, no one else is interested in investing in startups? It's a once in a lifetime opportunity and likely the last before post-capitalism. Don't say I didn't warn you.

[sophie]

I'll take a look at this - keeping Craig's advice in mind, and also after seeing a few episodes of Shark Tank for a refresher course.

Just after a brief peek at WeFunder, I really like the Brooklyn ginger brewery. Not so excited about the bionic pancreas - small market (type 1 diabetes only, not type 2) and it's been tried before and failed. Plus the landscape for medical devices has become really tough...FDA approval is capricious and is likely to take many years.

[MachineGhost]

I'll take a look at this - keeping Craig's advice in mind, and also after seeing a few episodes of Shark Tank for a refresher course.

Just after a brief peek at WeFunder, I really like the Brooklyn ginger brewery. Not so excited about the bionic pancreas - small market (type 1 diabetes only, not type 2) and it's been tried before and failed. Plus the landscape for medical devices has become really tough...FDA approval is capricious and is likely to take many years.

Do you have a link for the failed bionic pancreas? Do note that Beta Bionic is a public-benefit corporation so its not necessarily about making a killing from a liquidity event but doing something good for society. I'm perfectly okay with that. Same for some of the more localized, small potato opportunities that don't interest me.

Should I check out the ginger brewery some more? Do they have the desire and capability to scale big time via national distribution? I've already overlooked Cleveland Whiskey and that would have been a huge mistake vs WhiskyInvestDirect. <slaps himself> But that's a very disruptive technology rather than a me too johnny come lately like micro-breweries seem to be. There's like 1500 of them in the USA now and growth is slowing vs alternative liquors.

Also, there are startup ratings from Stratifund available although there's no proof provided that they are any better than throwing darts or your own research. I disagree with their ratings so far based on what I'm looking for. They seem to rate factors other than market potential a lot higher than I would. https://www.stratifund.com/deals

Keep in mind to make this work, you have to invest in at least 20 companies minimum. The failure rate will be about 90% based on venture capital investing, i.e. one or two huge winners that makes it all worthwhile, a small amount of ho hum small potato winners and the rest will all be losers. But VC funds have different needs due to the pressure to invest their huge sums than we do, of course. We can be a lot pickier and take the Buffett approach.

Hey Mountaineer, what do you know or think about SweetShine?

[MachineGhost]

Also, always keep in mind the general hierarchery of deal quality as there's now lower tier portals starting to offer deals:

The NYSE is WeFunder.
The NASDAQ is StartEngine.
The AMEX/ARCA is SeedInvest.
The rest are the OTC BB/Pink Sheets.

This could change over time. It's early days, yet.

[sophie]

There was an "artificial beta cell" project > 10 years ago, and I don't remember where just that nothing came of it. I just looked, sorry...will send the link if I can find it.

There's a lot of competition in this market, and given the effort it now takes for any medical device to get FDA approval, my money would be on a well established device company like Medtronics, not a new startup with zero experience or representation at the FDA.

Not excited about crowd funding though. See below from the WeFunder site:

Why invest in startups?

It shouldn't be to make lots of money! This isn't the stock market. Startups are much, much riskier and are likely to fail. Everyone has their personal motivations for investing in startups but ours is to support founders we believe in, pursuing a vision we care about, with a good chance of earning a return should that vision transform into reality.

[MachineGhost]

Republic.co is now live. It is a spinoff of AngelList.co which is the premier early stage investing site for accredited investors. For instance, Uber listed and raised capital on it. No doubt it has good odds to become the premier tier-1 player in the crowdfunding space, but we'll see. Minimums are as low as $10.

https://republic.co/

[ahhrunforthehills]

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[MachineGhost]

That's all generally true, but VC's need a lot of really big winners because they're dealing with tens to hundreds of millions of dollars in investment capital so their effective and liquidy opportunity set is extremely small. They simply can't invest enough capital in enough small potato opportunities that equity crowdfunding is offering, so you don't need as high a return as an individaul investor for it to be worth your while. So VC's can't really participate in the seed/startup funding that equity crowdfunding represents, but rather via formal series A,B,C,D, etc. financing rounds. And therein lies the opportunity for the individual investor. It's essentially no different in concept than a stock that has little to no analyst coverage and thus no interest by Wall Street. Some companies are going to use all methods of raising funds at the same time, some will do it sequentially as they grow bigger and bigger and some will stick to equity crowdfunding only and never make it out of the ballpark. The signal to noise ratio is never going to be as good as it is right now. In ten years time, the huge returns to vanguard investors will be a distant memory.

BTW, VC's are not really that good at what they do which is why they earn about average 10% returns in the long term. They're not quants but old boy, human centric, subjective networks. Think the pre-Moneyball era in baseball.

[ahhrunforthehills]

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[MachineGhost]

"Deal flow" is all relative. VC's can't spend their time doing due diligence on 1,000 opportunities with the large amounts of capital they have to place instead of 50 or 100. There's institutional bias and career risk at play. You make it sound like none of these crowdfunding companies are also going to be raising capital from VC's or angel investors. If you're one of those types that need social signaling to feel okay about investing in opportunities, there's some of that going on already.

If you have carved-out stats on angel investments only in under $1 million (Title III) and under $50 million (Title IV) raises, then it would be very germane to the topic. The fan-investor is also a new phenomenom without any stats. So are the investable yearly limits.

Of course this is a small portfolio because of the risk -- I never advocated otherwise. I see all of these new advisory services popping up to provide "due diligence" that follow that old school, cognitivelly-biased model of criteria that you listed -- color me skeptical that any of it is going to forecast the future any better than VC's (who I emphatically do not want to emulate for the same reason I would never give my money to Wall Street). It's like slicing, dicing, tilting, etc. whatever the Bogleheads love to fiddle around with instead of just adopting the PP. This is a diversification-numbers game after using your common sense to avoid opportunities without revenues, profit and scalability. The major difference is penny stocks are garbage nowadays because no one but hucksters raise capital that way anymore. Ten baggers are not there anymore nor is the size effect. And you just can't pull a Templeton in the stock market until there is a secular bear market low again, but you can in crowdfunding during these early stages.

I could be wrong, but Title III & IV opportunities are never going to be amalgated into a portfolio via an investable fund, or it would be easy enough to "index" by buying such a fund as it already is for Reg D opportunities. So you really have no choice here but to buy individual "lottery tickets" as you like to say.

[MachineGhost]

I looked up the stats on angel investments the other day and as far as I can tell from 1990 to 2014, the CAGR stayed remarkably consistent and was almost 27% a year. VC's typically have to invest in later stages at higher prices so their net return suffers and is around the public market average in the long-term (10%). However, the VC world is a lot like hedge funds or smartphones... only a very elite few make all of the profits and all the rest are tertiery losers.

As far as the failure rate on private startups goes, it is 62% for seed/early stages and 52% for mid-to-late stages. But early stages have a 60% increased probability of hitting 10x gains than the later stages. I used to be in a late stage company fund but due to the yearly fees and lack of company interest in IPOing because of the Sarbanes–Oxley Act, I junked it.

Believe it or not, there were actually some 100x+ baggers in the recent past. Netflix is up 92x since it IPOed (no idea on the return pre-IPO, but use your imagination). Pandora went up 181x by the time it IPOed. And YouTube has gone up an amazing 14,000x (not a misprint) to date which may include Alphabet's valuation increase since it was bought out by them. You don't need such riduclous returns to come out ahead, of course, but spread your seeds widely if you want a chance at bagging one.

[MachineGhost]

Another no-brainer. Boring, piss water, commercial beer is dead. Millennials have no interest in that tasteless stuff.

Craft brewer BrewDog has raised $1m (£770,000) from US investors within the first three days of a new funding round, according to the company.

The Aberdeenshire-based company said there had been an "unprecedented response" to its Equity for Punks USA crowdfunding initiative.

BrewDog hopes to raise up to $50m within six months to help fund expansion in North America.

Plans include a new 100,000 sq ft brewery in Columbus, Ohio.

It is scheduled to open later this year.

Shares in the funding round cost $47.50 each, with a minimum investment of $95. According to BrewDog, more than 1,200 people have already signed up to the scheme.

On its website, the company said: "This unprecedented response to our first crowdfunding round in the States shows the demand for our beer in America, and sets us up with a community of like-minded individuals ready and waiting to help us make our US business an explosive success."

http://www.bbc.com/news/uk-scotland-sco ... s-37024028

[MachineGhost]

Ironically, Beta Bionics was the very first startup company to reach the $1 million raise limit (Title III aka Regulation CrowdFunding). I cancelled because it was aimed primarily at those with diabetes or family members with diabetes and not as a profit making venture, so they don't really have an exit plan per se. They got a lot of press so it was probably easy for them to reach the limit.

It's been interesting to observe what the market has been deciding is worthy and not worthy of meeting funding goals. Some better ideas have disappointingly attracted very little (Gigmore); some dumber ideas have disappointingly attracted a very lot (Elio Motors). There's been two withdrawals that I'm aware of, the West Virginian Moonshine (failure to meet goal) and the Rocketbook (no idea why but I suspect maybe they didn't want to be on the hook for delivering so many free Rocketbooks to investors).

[MachineGhost]

[petergrace]

If one is not earning well then still is it possible for the investors to get them declare as "accredited" investors? To the best of my point of view they can't. Investing in any field is once own right, how can other can interfere in it. Equity crowdfunding is simply a mechanism to enable the broad group of investors to fund start up companies and small businesses in return for equity. Investor simply gives money to a business and receive ownership of a small piece of that business. http://crowdfund.co/equity/

[MachineGhost]

If one is not earning well then still is it possible for the investors to get them declare as "accredited" investors? To the best of my point of view they can't. Investing in any field is once own right, how can other can interfere in it. Equity crowdfunding is simply a mechanism to enable the broad group of investors to fund start up companies and small businesses in return for equity. Investor simply gives money to a business and receive ownership of a small piece of that business. http://crowdfund.co/equity/

It depends on what kind of regulation a company is raising funds under. The three traditional Regulation D offerings (504,505,506) that have reigned for 80 years are based on self-accreditation and are typically offline opportunities. But the newer Regulation D 506(c) requires accredited verification via a third party. Regulation CrowdFunding and Regulation A+ don't require being accredited at all. These latter three are what dominate the online portals. The SEC may nicely put in a "sophisticated investor" exemption for po' people to take via proctored examinations, but it looks like its stalled.

[MachineGhost]