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Title3Funds is a startup crowdfunding platform with a commitment to making quality startup investment available for all. Instead of listing hundreds of startups, the platform only has a handfull of deals available at any given time.
Through the platform, investors can find both debt and equity deals. This can provide a return profile tailored to an investor’s risk tolerance and return objectives.
Investors are able to get started on the platform with anywhere from $50-$500 depending on the individual deal.
- Open to non-accredited investors
- Thorough vetting process
- Both debt and equity investments
- No secondary market
- Limited track record
Many investors dream of investing in the next big thing before it becomes the next big thing. However, if you’re only investing in publicly traded stocks, this is quite difficult to achieve.
Most publicly traded companies have already reached a substantial size and were able to realize much faster growth earlier on.
In the past, the only way to invest in these companies before they reached the stock market was to be very well connected. However, over the last 10 years this has changed significantly.
The rise of startup crowdfunding platforms has leveled the playing field and made it much easier for everyday investors to get involved. Title3Funds is one of the frontrunners in the space and is attempting to revolutionize the way people invest in startups. In this Title3Funds review, we’ll take a closer look at the platform to determine if it’s worth using.
Title3Funds Review: Platform Highlights
- Title3Funds applies a strict due diligence process to determine which companies to list
- Investors can start with as little as a $50 minimum investment depending on the deal
- Investments on Title3Funds are structured as both debt and equity allowing for greater flexibility
- Accredited investor status is not required to invest in startups on Title3Funds
- All investments on the platform fall under Regulation Crowdfunding
What is Title3Funds?
Title3Funds is a newer startup crowdfunding platform. Launched in 2019, the company’s mission is to provide a highly curated selection of startups to invest in. Investors are able to browse deals on the platform without creating an account. However, in order to start investing, you need to create an account.
Currently, Title3Funds has 7 different deals listed on the platform. These come with a minimum investment ranging anywhere from $200 to $500. This is substantially lower than many other startup investing platforms. Much of this has to do with the investment structure.
All of the investments on Title3Funds fall under Regulation CF. Regulation CF is a piece of legislation that took effect in 2016 and expanded access to startup investing. Deals that fall under these rules are accessible to all non-accredited investors over the age of 18.
Additionally, Title3Funds has set a minimum total raise amount of $100,000 per company. This means that companies are not allowed to run a fundraising round on the platform for less than this amount. The reason for this rule is that Title3Funds only wants to attract high growth companies. Title3Funds is not intended for small businesses and they do not want to cater to this audience.
How Does Title3Funds Work?
Directly from the site, investors are able to browse all open deals and view company information. This includes term sheets, risk and upside potential, as well as investor perks. Many startups on the Title3Funds platform will choose to offer perks to investors who decide to back their companies. These could include free product, gift cards, or exclusive experiences.
If an investor decides they have interest in backing a company on the platform, the net step is to determine the type of investment. Title3Funds offers both debt and equity investments and it is important to understand the difference.
With an equity investment, you are investing your dollars and receiving ownership in the company. This is the type of startup investment that most people are familiar with. When you own equity in a company, you make money when the company experiences a liquidity event and you sell your shares for more than you paid.
A debt investment, on the other hand, works very differently. When you make a debt investment, you are essentially loaning money to a company. As a result, you do not receive any ownership in the business. Instead, you receive periodic interest payments (usually monthly) for a defined period of time.
In general, debt investments are viewed as less risky than equity because in the case of bankruptcy, debtholders take priority. However, if you invest in a company that goes bust, odds are you won’t be seeing any of your money.
How To Invest On Title3Funds
Once you find an investment that is appealing, you’re able to decide how much you want to invest. The minimum investment size is typically around $250. For accredited investors, there is not a maximum investment size. However, for non-accredited investors, there will be a maximum investment size depending on your income and net worth.
After selecting your investment, you have a number of options for funding your account. These include a bank transfer, credit/debit card, IRA, wire transfer, or physical check. Each of these options includes detailed instructions for investors to follow.
Unlike many other investments, after funding your Title3Investment you actually have the opportunity to cancel your investment for a period of time. This is due to the nature of crowdfunding.
All crowdfunding campaigns have a deadline to reach their goal. As an investor in a startup crowdfunding campaign, you have the ability to cancel your investment up until 48 hours before the deadline. This means if you change your mind you are able to pull out of your investment.
Additionally, if the company does not meet its goal, you will also receive a full refund on your investment.
Your return profile on Title3Funds will depend largely on the type of investment you make.
With an equity investment, you won’t see any returns unless the company reaches a liquidity event. This could include the startup being acquired or reaching an IPO. With a startup failure rate of 90%, this is unlikely and the odds are very high that your investment will go to $0.
A debt investment on the other hand typically has higher odds of success. This is due to the fact that the company will be making periodic payments to you. So even if the company goes bust down the line, you will likely receive a portion of your investment back.
However, given the structure of debt investments on Title3Funds, debt investors will not be receiving monthly payments.
The standard debt structure on the platform is a convertible note with a 5% interest rate. A convertible note is a debt instrument that is converted to an equity investment if the company goes on to raise another round of funding. Prior to that next round of funding, investors will receive a 5% interest rate accrued to their investment.
So regardless of the investment structure on Title3Funds, you’ll only receive a return if the company experiences a liquidity event. This is standard across the startup investing landscape.
Most deals that fall under Regulation CF have the same fee structure. Title3Funds has the standard fee structure for crowdfunded investments. This is a 7% listing fee charged to startups that meet their funding goal. Startups that do not meet their funding goal do not pay a fee and return 100% of the funds back to investors.
As a result, investors do not directly pay any fees. However, in most cases, startups factor these fees into their fundraising. This means that although you aren’t directly paying a fee, you may end up footing a portion of the bill.
For example, if a startup wants to raise $100,000, they may instead choose to raise $107,000 factoring in a $7,000 fee. While important to keep in mind, this is standard for almost all Regulation Crowdfunding deals.
- Title3Funds heavily vets Startups before listing them on the platform
- All deals are available to non-accredited investors
- Low minimum investment of $50-$500 depending on the company
- Deals fall under Regulation CF
- Mix of debt and equity investments
- Investor perks available depending on the funding level
- Limited track record as a newer platform
- No secondary market to sell investment early
- 7% listing fee for successfully funded startups
Title3Funds Review: Final Thoughts
Newer startup investors who are looking to dip their toes into the water of this asset class, may find exactly what they are looking for with Title3Funds. The platform’s low minimums and wide variety of companies make it an appealing option for novices.
Compared to other startup investing platforms, Title3Funds has a wider selection available. At the time of publishing, the platform has 7 active deals. Most of the other platforms we look at only have 2-3 active deals at any given time.
The addition of investor perks also serves to make Title3Funds a crossover between a traditional crowdfunding platform and a startup investing platform. Even if the company you invest in doesn’t go on to be successful, you may still walk away with a valuable product as a perk from your investment.
All-in-all as far as beginner startup investing platforms go, Title3Funds checks all of the boxes. Investors will find all of the features they are looking for and will pay the industry-standard fees. While the platform may seem somewhat unremarkable on the surface, this may be a benefit. You’ll find all of the features you need here without all of the frills you don’t.