Disclosures

  1. SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  2. SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  3. Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.

  4. Testimonials may not be representative of the experience of others and are no guarantee of future performance or success. No individuals were compensated in exchange for their testimonials.

Crowdsourcing a Title III Equity Crowdfunding Cost Model

 

We have created a quick and dirty equity crowdfunding cost model based on some assumptions about the industry. The results are a little shocking, with expected negative cashflow resulting even from successful crowdfunding offerings in several scenarios.

This is a work in progress and we are calling on investors, entrepreneurs and the crowd to help us refine this model. Please post any additional data points on how much you expect the various items to cost and any challenges to the assumptions and we’ll continuously update the model.

Here are some of the shocking (unintended) potential results of the SEC rules on equity crowdfunding.

  1. A successful $99,999 crowdfunding raise with no audited financials will result in negative cashflow to the company of about $38,000.
  2. A successful $1M raise will actually only net $750,000 in capital.  This is an astronomical cost of capital.
  3. Companies will have to spend between $5,000 (idea stage, small offering) and $38,500 (revenue generating stage offerings around $1M) and countless hours before even starting their offering. In our experience, these upfront fees can be a huge deterrent.
  4. Many startups will have to choose between keeping the doors open and violating securities law or paying hefty annual disclosure costs ($30,000+).   Startups without the money to pay the fees will have to dissolve prematurely in order to avoid violating the law.  This will result in premature failure of many startups and potentially a great reduction in the job creation originally intended from equity crowdfunding.

We will be sharing the results of this project directly with the SEC staff so please comment regularly.

Click Here to view or download the Equity Crowdfunding Industry Cost Model Spreadsheet.

 

This post was written by James Han on January 23, 2016

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