If you've ever seen shows like Shark Tank or Dragon's Den, you're probably familiar with the world of private equity investing.
But in these shows, and the real world as well, private equity deals are often only open to accredited investors, hedge funds, and VC firms. For everyday investors, this makes private equity seem out of reach.
However, crowdfunding platforms like StartEngine are removing barriers to entry. For as low as $100, you can now invest in private equity deals across a range of sectors. And you don't have to be an accredited investor to get a seat at the table.
That said, equity investing is very speculative and risky. That's why our StartEngine review is covering how this platform works, the pros and cons, and if it's worth using.
Pros & Cons
What Is StartEngine?
StartEngine is an equity crowdfunding platform that began in 2014 and operates out of Los Angeles, California. To date, it's grown to a community of over 950,000 members who have raised over $600 million in 750+ funding rounds.
The company also made a splash in 2020 when investor and Shark Tank guest Kevin O'Leary, also known as Mr. Wonderful, joined as a strategic advisor following an $8 million funding round. Since then, he's largely become the face of the platform, encouraging everyday people to enter the world of startup investing.
What Does StartEngine Offer?
If you've ever wanted to invest in venture-capital style deals, StartEngine could be the platform for you. It offers a beginner-friendly way to add private equity to your portfolio, as well as rare collectibles.
Startup Investing Opportunities
The main attraction of StartEngine is that it lets everyday people invest in startups whereas it used to be difficult to get a seat at the VC table. And the startup variety is quite good on StartEngine. For example, there's 150+ available startups to invest in at the time of writing, including sectors like:
- Real estate
- Trading algorithm platforms
- Solar energy and panels
- A.I. software
- 3D printing
- Travel and lodging
Minimum investments are often in the $100 to $500 range, which is perfect if you're investing a small amount of money but want to add startups to your portfolio. Most investments are for common stock. However, companies can also raise money with convertible notes, revenue share agreements, and debt.
However, there are two classes of investments on StartEngine:
- Regulation A+: With these deals, non-accredited investors can only invest a maximum of 10% of their annual income or 10% of their net worth per year, whichever is greater.
- Regulation Crowdfunding: Non-accredited investors with an annual income or net worth less than $107,000 can only invest a maximum of 5% of the greater of the two amounts. If your annual income or net worth is over $107,000, you can invest 10% of the greater of the two amounts.
If you're an accredited investor, you don't face these restrictions. But this requires having a net worth of at least $1 million or an annual income of at least $200,000 (or $300,000 with a spouse.)
Startups aren't the only available investment on StartEngine. In fact, it also offers shares of collectible investments like:
Investment minimums are often in the $100 range as well. And if you've used platforms like Rally Rd. or Collectable before, which also offer fractional shares of collectibles, this marketplace will feel very familiar.
StartEngine Secondary Marketplace
StartEngine Secondary is a peer-to-peer marketplace where investors can buy and sell shares of companies listed with StartEngine. It's an Alternative Trading System (ATS) that's registered with the SEC, so it's similar to trading with your online broker, just for shares purchased through Regulation A+ and Regulation Crowdfunding.
Note that not every company that lists with StartEngine enables trading on the secondary marketplace. This means liquidity isn't guaranteed. And since it's peer-to-peer, buyers and sellers set and negotiate on price. Buying shares on StartEngine secondary is free, but sellers pay a 5% transaction fee.
To reward its users, StartEngine has an “Owner's Bonus” program that provides investors with bonus shares, early-access to launches, and other perks. Some of the main benefits include:
- Earning 10% extra shares on available investments that are participating in the Owner's Bonus program
- Getting a 20% discount on seller fees when trading with investors on the secondary marketplace
- Getting exclusive seven-day access to new collectible launches on StartEngine
- Getting priority access on a waitlist when trying to invest in oversubscribed companies that have already raised enough money
The 10% share boost is the main selling point since it means you immediately get more bang for your buck. The Owner's Bonus costs $275 per year, but this can pay for itself if you get enough free shares from your other investments.
Since StartEngine makes most of its money from charging companies to fundraise through its platform, many opportunities are fee-free for investors. However, companies can charge a 3.5% processing fee that investors pay in addition to share prices.
You can also pay wire transfer fees depending on your bank. Credit and ACH payments don't have any processing fees.
Due Diligence Process
Investors on StartEngine are responsible for doing their own due diligence and researching potential opportunities. In other words, just because a company lists on StartEngine, doesn't mean it's a good investment or that performance is guaranteed.
That said, StartEngine does have a due diligence and screening process companies must pass to list. There are some obvious requirements, like having a company website and an existing customer base or plan to acquire customers in the future. Additionally, companies must have primary operations in the United States.
I've researched numerous equity crowdfunding platforms, and in my opinion, StartEngine has the least inspiring due diligence and screening document I've seen. For one, it's a two-page document on a simple Google Doc, so it's not even on the company website. And it doesn't provide information about the acceptance rate for companies to list.
In contrast, competitor crowdfunding platforms like OurCrowd clearly explain that it only accepts 1-2% of companies that apply and has a rigorous five-step vetting process. It also invests alongside investors in many companies, so it has skin in the game.
In comparison, I feel like StartEngine somewhat puts companies before investors. After all, it's the listing companies that pay StartEngine's bills, not investors. This isn't uncommon for crowdfunding platforms, but do your own due diligence and don't take anything for granted.
Liquidity & Risks
Investing in private equity can result in outsized returns if you get in early with the right company that raises additional funds at higher valuations. However, it's a much more speculative, risky investment than something like dividend stocks or bonds.
The main risk is that the company you invest in goes under or simply doesn't grow. And there's also the potential risk that companies raise so much money and you become very diluted over time. Plus, since companies aren't required to list on StartEngine's secondary marketplace, you might not be able to exit unless the company goes public or buys backs shares.
In fairness, StartEngine issues the following disclaimer on its website regarding the risks for investors:
In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risk involved. Investments on StartEngine are speculative, illiquid, and involve a high degree of risk, including the possible loss of your entire investment.
In short, don't invest money with StartEngine you can't afford to lose. And always do your own due diligence and research since StartEngine isn't responsible for deeply vetting companies that list.
Is StartEngine Safe?
Since equity crowdfunding is regulated by FINRA and the SEC, you get some protection as an investor on StartEngine. Specifically, you get up to $500,000 in SIPC insurance for cash and securities.
This essentially means your money and investments are “safe” in the event StartEngine goes bankrupt. However, performance isn't guaranteed, and as mentioned, private equity is high-risk, high-reward.
Who Can Invest?
You have to be 18 or older and live in the United States to invest through StartEngine. The website also says that Canadian and UK investors can't currently invest.
Also note that your accreditation status, income, and net worth influence how much you can invest in different opportunities.
How to Contact StartEngine
You can contact StartEngine by emailing email@example.com. There's also a phone number you can call to ask questions about your personal data and privacy. However, there's no general customer service phone number.
I find the lack of phone support somewhat strange since StartrEngine is a more speculative alternative investment platform, so investors might naturally have a lot of questions before they invest.
There are numerous crowdfunding companies that specialize in startup investing that are reputable alternatives to StartEngine. For example, OurCrowd is open to accredited investors and has companies across similar sectors. That main difference is the accreditation requirement, and there's a $10,000 investment minimum as well.
SeedInvest is another crowdfunding platform that has a $500 minimum requirement and is open to non-accredited investors as well. And what makes it unique is its automatic-investing feature that lets you invest in a portfolio of startups. Finally, options like AngelList are a middleground between these two alternatives with a $1,000 investing minimum.
Overall, StartEngine is the most beginner-friendly option due to the low minimum investment requirement. But you can sign up for free on all these platforms to compare investment opportunities.
On the surface, StartEngine is a very exciting way to diversify your investments with private equity. And to its merit, the website is sleek, user-friendly, and has many exciting investments with low minimum requirements.
If you're willing to take a risk and do your own due diligence, StartEngine could be for you. I'm not a fan of how vague its vetting and screening process is, and I think some competitors do a better job at explaining how companies can list.
But StartEngine has lower investment requirements than most competitors. Ultimately, consider the risks and potential returns, and never invest money in private equity you can't afford to lock-up or lose.