StartEngine is moving for market dominance as they
In one of the first major moves for the industry, equity crowdfunding giant StartEngine is set to acquire SeedInvest. SeedInvest has never been a leader in the Equity Crowdfunding space by volume, but instead known for their vetted raises that often raise larger amounts in higher quality startups. They recently published an exits page showing an incredible success rate on the platform with over 22 acquisitions and at least 2 IPOs after raising on SeedInvest. This is a huge move for the equity crowdfunding industry, as SeedInvest has been incredibly successful and really one of the only successful niche platforms in the industry.
Is SeedInvest a Smart Acquisition for StartEngine?
StartEngine is currently focusing most of its platform on the quantity of offerings as a means of raising the most amount possible. There really isn’t any distinguishing between good and bad, so it can drive off more competitive startups looking to raise because they might not want to get lumped in with everyone else. SeedInvest is typically only a dozen or fewer companies looking to raise a large amount of money and are considered to be top raises, and this can really complement their current dynamic. SeedInvest is the only one that focuses on a few ‘heavily vetted’ raises and does so successfully, so using StartEngine's existing infrastructure to help reduce costs can help SeedInvest become more profitable as a means of having a successful business model.
While the SeedInvest business model complements StartEngine well, there are two other important and notable aspects of this. First, Howard Marks noted this acquisition involves bringing the owner of stablecoin USDC, Circle, on board as a minority shareholder of StartEngine. Having such a large and prominent investor on their cap table will provide various avenues of future growth and ultimately help the company continue its current growth trajectory.
Consolidation within Equity Crowdfunding
Many have speculated that consolidation within the equity crowdfunding industry was inevitable. The barriers to entry for an equity crowdfunding portal are pretty low, but the maintenance and upkeep can be incredibly burdensome. This means smaller platforms typically come and go, but top platforms have constantly been fighting for market share. Landing a large raise might be the difference between being the largest portal that month and nobody has really come out on top as a consistent leader in the space. It seems StartEngine has now made the first move in this space, as SeedInvest is typically sitting around the #5 spot or so, despite going for quality over quantity. Based on some of the materials StartEngine provided, it seems like SeedInvest has been hurting recently and might be largely unprofitable so this could have been a pretty cheap acquisition for them.
StartEngine noted they’re going on the “offensive” as many struggle to stay afloat. StartEngine actually broke a profit last year and has raised over $8 million this year. They raised over $20 million in both of their previous two raises, which means they have more than enough money right now to stay afloat. Since the overall industry has slowed down quite a bit, many haven’t raised as much and aren’t as well capitalized, and many have never achieved anything near a profit. As others continue to bleed money as the downturn continues, StartEngine is pretty consistently doing well on cash which within itself gives them a boost as they continue to work on rolling out things like StartEngine Accounts, StartEngine Secondary and working to build alternative revenue streams.
Details of the Acquisition
The acquisition was for 960,000 shares of StartEngine's common stock, which, based on StartEngine's current Regulation A offering price of $25 per share, would be valued at roughly $24 million to acquire "substantially all" of SeedInvest's assets. The items to be excluded are any equity interests, SAFEs, Convertibles notes, and other investment mediums Seedinvest acquired in the course of their business. Further, they will keep their licenses as a Broker-Dealer and similar regulatory approvals. The deal is anticipated to be completed around the first quarter of 2023
All around, this is really great news to hear as a StartEngine investor. I think it’s an incredibly smart acquisition and will complement their existing infrastructure and business model incredibly well. Not only will StartEngine heavily benefit from this acquisition, I think StartEngine can provide immense value to SeedInvest as well.