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Wish you could have invested in Facebook, Amazon, or Tesla before the companies went public? You may have missed that boat, but now there's a way for you to get on board early with the next big thing. StartEngine, which was started in 2014, is an equity crowdfunding platform. It allows anyone to invest in start-ups, not just private equity or venture capital firms.
Shark Tank investor Kevin O'Leary, aka Mr. Wonderful, is a shareholder of StartEngine and its Strategic Advisor. O'Leary is advising StartEngine on how to offer services to small businesses. He's also encouraging the Shark Tank companies he invests in to use StartEngine for their funding needs. But why is Mr. Wonderful backing StartEngine?
What is StartEngine?
StartEngine helps entrepreneurs raise capital. It is an alternative source of financing that allows small businesses to raise money directly from their customers and advocates. O'Leary states that StartEngine is one of the top leaders in the equity crowdfunding industry.
StartEngine has raised over $600 million and funded more than 500 offerings with 760,000 prospective investors. It has a strong management and compliance team, and O'Leary states he became a shareholder, investor, and strategic advisor because he believes in what StartEngine does.
What are the benefits of StartEngine?
StartEngine allows start-ups looking to raise money to get financing without being beholden to one private equity firm or investor. Start-ups can set their own terms, from valuations to share price, so they maintain control. StartEngine allows companies to raise money while growing through what O'Leary calls "an army of brand investors." StartEngine provides a team and advertising campaigns to help launch the offering. Companies can raise up to $5 million for a seed round and up to $75 million for a Series A round.
If you are an investor, StartEngine offers you a way to diversify outside the stock market by investing in start-ups and early-growth companies. StartEngine was made possible by the 2012 Jumpstart Our Business Startups (JOBS) Act. This law gave companies more freedom in the ways they could fundraise. Prior to that, only accredited investors (those with a net worth of at least $1 million, excluding their primary residence) or those earning at least $200,000 in income each year (or $300,000 if combined with a spouse's income) could invest in start-ups.
Now any investor can invest as little as $100 in companies that can possibly be the next Google. Start-ups have to meet certain requirements, and StartEngine reviews companies to make sure they are a good fit for the platform. You can invest in companies and industries that you are passionate about, from green tech to professional ultimate Frisbee leagues.
Is StartEngine right for you?
Like any investment, putting your money into companies via StartEngine comes with risks. Investing in start-ups is inherently more risky than funding established companies. If you are looking for short-term returns or high liquidity, then StartEngine isn't right for you. The pool of investors is not as large as the S&P 500 index or other publicly traded companies and funds.
While many investments are free, some companies on StartEngine charge a 3.5% processing fee on top of the share price. Given that the companies set their own valuation and terms, there is no room for negotiations.
StartEngine offers benefits for both companies and investors. New companies have access to capital that doesn't involve traditional sources of funding like banks or private equity investors. Investors now have more opportunities to invest in companies in earlier growth stages. StartEngine is able to connect buyers and sellers without going through an intermediary. Since investing in start-ups can be risky, it is important to do your research and due diligence to make sure it is right for you.
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