Updated: Nov 3, 2022
We’ve got more details on this massive equity crowdfunding acquisition
StartEngine shook the industry with its recent announcement of its acquisition of SeedInvest. Initially, there was a lot of speculation about what this might look like, but it seems we’ve finally gotten more information about this landmark deal. It was initially confirmed from a Form 8-K filed with the SEC the purchase is an all-stock deal in the amount of 960,000 shares worth $24 million at the current $25 share price. In a recent webinar with Mr. Wonderful and StartEngine CEO, we learned several details about the new acquisition. Check out some more of the details here:
What’s Happening to SeedInvest?
In a pretty substantial decision from StartEngine, they have confirmed that they will be killing the SeedInvest platform. They plan to integrate the backend SeedInvest infrastructure, like deal flow avenues, investor accounts, contacts, and more, into StartEngine, but afterward, SeedInvest will no longer cease to exist. They say this is because scale is vital to a successful equity crowdfunding platform to cover legal costs and the general upkeep of a platform. Given that SeedInvest was acquired for just $23 million in stock, and there were several indications SeedInvest was nowhere near profitable, this makes sense. Continuing to operate SeedInvest at a heavy loss wouldn’t make sense because it would force StartEngine to focus on building two brands, fight to make SeedInvest profitable, and generally distract from growing one single brand.
Since StartEngine is now a broker-dealer and approved to hold securities on behalf of its clients, the majority of the value here is the hundreds of millions of dollars in securities raised being transferred over to the StartEngine platform. These accounts are now tied to StartEngine, which hopefully means companies and investors are more inclined to invest with StartEngine in the future.
This also means there are fewer top platforms to choose from, which naturally means more companies will now be split between the top three platforms. This might not be a substantial amount of companies, but if NowRx goes with StartEngine next time, that is tens of millions of dollars coming into StartEngine next time. Realistically, the real value is the deal flow networks, as StartEngine will likely accept more companies than SeedInvest, and the transfer of investor accounts means they will manage substantially more assets and accounts.
What does the SeedInvest Acquisition mean for the Equity Crowdfunding Industry?
As was previously alluded to, this is good for every other platform… except SeedInvest. It was one of the earliest platforms and well-liked by a lot of people, but its model just isn’t profitable, and it seems like its time has come to an end. However, they are consistently one of the top 5 platforms, so that deal flow will now primarily go to the other top 4 platforms. This means Wefunder and Republic will also benefit from SeedInvest getting the axe, and technically the traditional #5 or #6 might even benefit as they will technically move up to the #4 or #5 slot.
How Will the SeedInvest Acquisition Help StartEngine Investors?
If they kept the SeedInvest platform operating, it would directly result in more revenue which would mean, generally, a higher valuation. However, since they are scrapping the platform, the real value lies within the SeedInvest accounts. As I previously mentioned, StartEngine can hold the stock invested on its platform, so they can add “Assets Under Management (AUM)” and similar metrics to its investment case. Since SeedInvest has raised hundreds of millions of dollars in stock over the years, all of those hundreds of thousands of accounts holding hundreds of millions of dollars in stock now will end up directly under the control of StartEngine. This means they can advertise their additional hundreds of millions in AUM as a selling point, and hopefully, those investors also end up investing through StartEngine more often as well.
A few things discussed is that, similar to StartEngine, SeedInvest often takes a stake in companies on their platform. None of that equity will transfer over to StartEngine. As well, the $10.5 million investment in CrowdCube from last year will also not be going to StartEngine. Lastly, none of the regulatory licenses will be going to StartEngine either, like their ATS license and so on (because StartEngine already has all of those same things.)