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StartEngine Review 2021: Best Startup Investing Platform?

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StartEngine
  • Minimum Investment
  • Accessibility
  • Transparency
  • Investment Fees
  • Offering Selection
4.4

Summary

StartEngine is one of the leading startup investing platforms with a community over 500,000 investors. The platform allows investors to browse hundreds of startups that are actively raising money and easily invest in companies that strike their interest.

Each deal on the StartEngine platform comes with an abundance of information on the company and product. It is up to investors to vet each deal and decide whether they want to invest.

StartEngine makes it extremely easy to start investing with minimum investments as low as $99 on some deals.

Pros

  • Secondary market for shares
  • Hundreds of active deals
  • User-friendly interface
  • Strong track record of deals
  • Low minimum investment

Cons

  • Minimal vetting of startups
  • Higher fees for startups

Growing up, I’m sure many of us were exposed to the show Shark Tank at one point or another. If you missed out on this show, the premise was simple.

Founders (or aspiring founders) of companies of varying degrees of promise would pitch their business or idea to 5 “sharks”. These sharks all had millions of dollars at their disposal to potentially invest into these companies.

Depending on the quality of the pitch and the idea, founders would walk away with anything from $1 million and the support of a highly successful entrepreneur, to empty pockets and a shattered ego.

While the show was certainly a highly dramatized version of startup investing, this was my initial exposure to the world of venture capital and angel investing and opened my eyes to the potential of investing in early-stage companies.

Since then, investing in startups has become an option for everyday investors thanks to the rise of crowdfunding platforms like StartEngine. This platform has extra significance to me as their primary spokesperson is Kevin O’Leary, one of the original 5 sharks.

In this StartEngine review, I’ll outline the core features of the platforms, the main drawbacks for investors, and whether or not I feel it is a good platform for diversifying your investment portfolio into startups.

StartEngine Review: Platform Highlights

  • StartEngine allows everyday investors to start investing in high growth early-stage companies through crowdfunding
  • Investors are able to browse hundreds of active offerings and invest directly through the platform
  • Minimum investments start at $99 for some deals and range all the way up to $1,000 for others
  • Non-accredited investors can access all of the investments on the StartEngine platform
  • Similar to other crowdfunding platforms, startups can set rewards based on how much you invest
  • There is a secondary market on StartEngine that allows investors the ability to sell their shares early

Click here to view current offerings on StartEngine!

StartEngine Logo

What is StartEngine?

Founded in 2014, StartEngine is an equity crowdfunding platform for investing in startups. Their objective is to democratize access to capital and allow startups to raise money from the masses instead of being limited to venture capitalists.

At the same time, this allows us (i.e. the masses) to invest in private companies and potentially benefit from the significant return potential that startups can offer.

How Does StartEngine Work?

Similar to Kickstarter or Indiegogo, you are able to browse different projects to support. Then as a supporter, you are able to receive different perks based on how much you contribute.

However, this is where the similarities between StartEngine and these other crowdfunding platforms stop.

With StartEngine, instead of buying a product or a piece of merch, you are buying a piece of the company and becoming a partial owner. This allows the company the ability to grow faster and gives you the opportunity to profit if the company is successful.

As an investor, you’ll likely be able to vote in company decisions and shape the future of the company as well. However that’s not a requirement and you can choose to be completely passive in your investments as well.

On the StartEngine platform, there are two different types of investments offered: Regulation CF, and Regulation A+ investments.

Regulation CF

With a Regulation CF or Regulation Crowdfunding investment, a company is limited to raising $5 million. While this may seem like a lot of money to some, many high-growth companies would have no trouble burning through that cash very quickly.

Both accredited and non-accredited investors are able to participate in Reg CF offerings. Non-accredited investors are limited to investing the greater of 5% of their annual income or net worth. Accredited investors do not have an investment limit.

Regulation A+

Companies raising money under Reg A+ can raise up to $75 million annually through crowdfunding. However, the offering must be qualified by the SEC before listing, a process that can take up to 6 months and is significantly more costly.

Non-accredited investors are also able to participate in Reg A+ offerings, and are able to contribute more. Instead of a 5% limit, investors can allocate 10% of the greater of their income or net worth to these offerings every year.

StartEngine Crowdfunding Campaign

Invest In StartEngine!

On the StartEngine platform, investors are able to invest in the company StartEngine itself. StartEngine is currently in the middle of a Reg A+ offering that all investors have the ability to invest in.

Currently, Bioverge is the only other startup investing platform allowing users to invest in the company itself.

Investors that are excited about the future prospects of the StartEngine platform may decide to invest directly into the platform to benefit from its growth. To date, StartEngine has raised over $6.6 million through this crowdfunding campaign.

StartEngine Features

Even when compared with the many other startup investing platforms, there are a couple of features that cause StartEngine to stand out from the crowd. The two most significant of which are the StartEngine Owner’s Bonus and StartEngine Secondary.

Owner’s Bonus

If you are someone that plans to invest in a number of startups through StartEngine, the StartEngine Owner’s Bonus might present an exiting opportunity for you.

In essence, the Owner’s Bonus is a yearly membership that you can choose to purchase. This membership comes with a host of benefits for StartEngine investors. This includes getting 10% bonus shares on eligible investments and a 20% reduction in fees through StartEngine Secondary.

When browsing investments, you are able to see whether they are eligible for the 10% bonus. If they are eligible and you have purchased the Owner’s Bonus, you’ll receive 10% more shares than you normally would.

For example, if you invest $1,000 into an eligible company, you’ll receive $1,100 in shares.

The StartEngine Owner’s Bonus comes at an annual fee of $275 per year. So if you plan to invest more than $2,750 through StartEngine in a year, it could make sense to invest in the Owner’s Bonus.

StartEngine Secondary Market

StartEngine Secondary

Unlike most other startup investing platforms, StartEngine offers a secondary market for investors to buy and sell shares after the initial offering. This provides a level of liquidity to investors far beyond what other platforms can offer.

Instead of waiting for a liquidity event, investors can choose to sell their shares on the secondary market to other StartEngine investors.

While this increases liquidity, a StartEngine investment is still significantly less liquid than a stock market investment. This is because the number of potential buyers on the platform is much smaller. Just because you put in a sell order for an investment does not mean it will sell.

However, StartEngine giving investors the opportunity to sell their shares early does make it a more compelling choice for many beginner investors.

StartEngine Returns

Although there is a secondary market, most investors will only experience a return on their investment in a liquidity event. This is the nature of investing in startups. As a result, it’s important to take a long term time horizon with any startup investments you make.

The two most common types of liquidity events are IPOs and acquisitions.

An IPO or initial public offering describes the process of a private company offering their shares on a public exchange. A few examples of companies that have recently gone public are Coinbase and Robinhood.

In both of these scenarios, investors became able to sell their shares in the public markets. In the process, many of these investors likely also saw a significant return on their investment. An individual who invested $5,000 into Robinhood’s Series A would have an investment that is now worth nearly $1.5 million.

An acquisition occurs when another company purchases a majority stake in the startup. Oftentimes when this happens investors are given the option to sell their shares or their shares may convert into shares of the acquiring firm.

Typically startups that go on to be acquired do not deliver as large of returns as those that IPO. However, that is not always the case and there are many instances where investors in acquired startups see very large ROIs.

To date, 7 companies listed on StartEngine have gone on to either IPO or become acquired according to Crunchbase. This is roughly on par with what a person would expect given the 90% failure rate of startups.

Thee companies have delivered various levels of returns, however, it’s important to keep in mind that the odds of your investment going to $0 are high.

StartEngine Active Offerings

StartEngine Fees

The StartEngine fee structure is generally quite advantageous for investors. Many investments on the platform will have no fees for investors, allowing your dollars to go farther.

However, some investments on the platform may come with a 3.5% processing fee. This will go to cover some of the costs that the startup has to pay.

Startups can end up paying a variety of different fees when raising money on the StartEngine platform. This includes a cash fee, an equity fee, and a deferred revenue fee. All of these fees only apply to startups that successfully raise money on StartEngine. If a startup does not meet their funding goal, all of the money is returned to investors.

The cash fee for startups is 7% of the total amount raised. Startups can choose to split this fee with investors if they wish. In this scenario, investors will see the 3.5% processing fee on their investment.

The equity fee for startups is an additional 2% of the raise amount paid in equity. This gives StartEngine ownership in all of the companies that successfully raise money on the platform.

Last, startups also pay a $10,000 deferred revenue fee after a successful raise.

So while there are typically no fees for investors, the higher fees for startups may discourage some companies from using the platform.

There is also a 5% fee for selling shares through StartEngine Secondary.

StartEngine Pros

  • Wide variety of startups to research and invest in
  • Secondary market for selling your shares at any point
  • Minimum investment as low as $99 on some deals
  • Track record of multiple successful exits to date

Click here to view current offerings on StartEngine!

StartEngine Cons

  • Minimal vetting of companies from StartEngine
  • Higher startup fees may discourage some companies
  • 5% Fee for selling shares on StartEngine Secondary

StartEngine Review: Final Thoughts

For investors looking for an established and time-tested way to invest in startups, StartEngine may present a compelling option.

With a simple interface, low minimums, and an abundance of investments to choose from, it’s certainly one of the easiest platforms to get started with.

StartEngine Secondary also makes an investment on the platform less of a commitment as you’re potentially able to sell your shares early.

However, the platform does not have as strict of a vetting process for businesses so as an investor, the onus is on you to do your own due diligence before investing.

Either way, the platform is free to sign up for so if you’re at all interested there’s no reason not to sign up and check it out.

Click here to view current offerings on StartEngine!

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