Investing in startups has become a widely popular choice in today’s day, and you don’t have to be a professional investor to get started. Everyday investors that want to invest in startups now have access through the equity crowdfunding platform, SeedInvest. It’s also a place for startups to find potential dollars into raising capital.
The question is, does it truly make sense for investors to leverage this investing platform to find solid startup companies? That’s what we’re going to decide. We’ll provide you with a detailed breakdown of everything this platform offers in this SeedInvest review. Let’s get started!
What is SeedInvest?
Founded by Ryan Feit and James Han, SeedInvest is a private equity crowdfunding platform. It enables individual investors to invest in pre-vetted startups.
Backers in equity crowdfunding aren’t only supporters, but also investors that receive an ownership stake in what the company raises. Typically, you must be what’s called an “accredited investor” to take advantage of these investment opportunities.
This accredited status is obtained usually by having a net worth of over one million dollars (excludes the value of the primary residence) or has an income of over $200k over the past two years. This basically means that accredited investors are wealthy individuals.
However, SeedInvest was the first equity crowdfunder to allow individuals that don’t have to be accredited investors to invest in startups found on its public marketplace. That allows many more investors interested in startup investment opportunities to participate using the SeedInvest platform.
SeedInvest connects companies with both accredited investors and non-accredited investors which provides a broader base.
The company has a more exclusive vetting process for companies that want to pursue investments using its platform. The SeedInvest platform is meant for business fundraising only.
Only about 1% of companies that have applied on the platform have been approved so far. That means you’re getting highly vetted startups to choose from.
Leading Equity Crowdfunding Platform
More than 230 companies have used the investment platform to raise funds and there are around 500,000 investors. There are companies in many different industries such as real estate, technology, and more, so you can build a diversified portfolio.
SeedInvest Features
Now that we’ve learned more about the background of SeedInvest, let’s take a closer look at this platform’s features. Below, we will discuss SeedInvest’s account types, minimum investment amount, investor fees, requirements, diversification options, payment methods, and investment terms.
Account Types
- Individual
- Corporate entity
- Trust
Minimum Investment
- $500 to $10,000 or can invest as little as $200 per company(Auto Invest account)
Investor Fee
- 2% one-time processing fee per investment, up to $300
- This fee is returned if the company does not meet its fundraising goal
Investor Requirements
- Reg CF – These are open to accredited and non-accredited investors
- Reg A+ – these are open to accredited and non-accredited investors
- Red D – These are open to only accredited investors
Options for Diversification
- Can invest in up to 25 companies using Auto Invest at $200 per company
Payment Methods
- Debit card; Can be used for investments of $2,500 or less
- U.S. checking account
- Wire transfer
Investment Term
- 5+ years
How to Fund Investments on SeedInvest
You can fund your investments on SeedInvest using the following three methods:
- Debit card (investments of $2,500 or less)
- U.S. checking account
- Wire Transfer
In addition, the method of payment must match the type of investor. For example, if you’re an individual investor, then it should be a personal account that is used to fund the investment.
Credit cards are considered trading on margin and therefore are not accepted as a payment method to invest.
When using a checking account, SeedInvest performs a penny test initially. That means that SeedInvest deposits a small amount into the account for verification.
Debit cards are charged $0.25 when used to fund an investment. The amount is returned after it has been verified.
SeedInvest Services
Startups Investing
Non-accredited investors and accredited investors can both find companies that are trying to raise capital on SeedInvest. So if you have certain companies that you wish to fund as part of your investment strategy, you have the ability to do this.
It’s important to note that there are a few startup investing opportunities that only accredited investors can take advantage of.
Reviewing companies is very easy to do using SeedInvest’s user interface. You can view helpful information like how much money they have raised so far, the minimum investment required, valuation cap, and more.
Auto-Invest
If you prefer not to choose investments and rebalance their portfolios, they can use SeedInvest’s automated investing. With an auto-invest account, a diversified portfolio of companies is built for you.
To open an auto-invest account, you must have at least $1,000 and a minimum of $200 for each investment. There is a 2% processing fee for each investment that the company completes for you. You can invest in up to 25 companies.
SeedInvest’s auto-invest account features the following:
- Diversification – You can build a diversified portfolio with a startup investing in a variety of industries like tech, real estate, e-commerce, etc.
- Control – SeedInvest recommends startup investments in companies that have a least a five-year timeline. However, you can opt-out of opportunities that don’t interest you, add or withdraw funds, or restart as you wish.
- Due Diligence – The companies that make it to SeedInvest must undergo an extensive vetting process. Hence the only companies to successfully complete their process are less like to turn into high-risk investments.
SeedInvest Startups
Startup companies in various stages could seek investment using SeedInvest’s platform. That means everything from the early stage (called “seed rounds) to those that are in more standard venture financing rounds like the Series A, Bridge, and Growth rounds.
When you invest in a company that is in its earlier stage, they are typically riskier. The tradeoff is that there is also more of a potential for a greater return over the long run.
SeedInvest Startup Qualifications
SeedInvest is flexible with the types of individuals who may invest on their platform. For startups that want to be on its platform, things get quite a bit more rigid.
For startups that wish to apply for online fundraising through SeedInvest, they must meet the following requirements:
- Have a prototype or minimum viable product
- A minimum of two full-time team members
- Proof of concept (may include partnerships or customer traction)
- The business must be incorporated in the United States
As part of SeedInvest’s diligent process, they review the items that include the following:
- Growth strategy
- Problem/inefficiency that’s being addressed
- Product or service overview, development stage, milestones anticipated
- Demonstrated traction such as signed contracts, purchase orders, etc.
- Intellectual property
- Historical financials
- Exit opportunities
- Addressable market
- Competitive landscape
- Reference checks
- Financial projects
This list just gives you a taste of the due diligence that SeedInvest runs startups interested in raising private equity on their platform. It’s no wonder that most companies won’t don’t make it through.
Options to Raise Capital
There are three different fundraising options that are available to startups who wish to participate. Below, we will take a look at each option.
Accredited Only
- $500,000 to unlimited raise amount
- Two months to raise capital
- Only an accredited investor may participate in these investments
Side by Side
- $250,000 to $3 million raise amount
- 2.5 months to raise capital
- Accepts funds from accredited investors, non-accredited investors, and all customers
Mini-IPO
- Up to $50 million raise amount
- 3 months to raise capital and accept funding from accredited investors, non-accredited investors, and all customers
How Safe is Your Money with SeedInvest?
Investing in early-stage companies is risky. Although SeedInvest has a rigorous due diligence process, there’s no way to guarantee that you will see a return on your investment.
Actually, you may not even get back your original investment. The funds invested using SeedInvest technology are not FDIC or SIPC insured.
Also, you should be aware that private equity investments are not very liquid. You can’t sell your shares on a public marketplace like the stock exchange.
SeedInvest recommends that people hold their investments for a minimum of five years.
In addition, you may not receive income during your holding period or at the end of your investment period. If a company fails, then you may lose all your investment
A successful company could also mean having your position diluted with future funding rounds.
The bottom line is that if you have a low-risk tolerance, it’s not likely that your investment strategies should include these types of investments.
Who should use SeedInvest?
Individuals who invest in startups found on SeedInvest should understand the risks that are involved. For example, they should be aware that their investments should potentially be completely lost depending on what happens to the start.
You should also be the type of person who wants to take control of their portfolio and be comfortable with the nature of how startups work.
SeedInvest Pros
- SeedInvest is available to non accredited investors so more individuals can participate
- The unrealized internal rate of return on SeedInvest investments on average is 17.4% according to SeedInvest; That is in comparison to other venture funds which return 11.7%
Seedinvest Cons
- There is a lot of risks that is involved with startup investments
- If you are a startup that wishes to raise money on its platform, its fees are high
SeedInvest Account Costs
SeedInvest’s costs include investor fees for investors and startup fees for startups. Let’s take a closer look at what these fees entail.
Investor Fees
Equity crowdfunding involves investing, which makes it very different from donation-based or rewards crowdfunding platforms. It is much more strictly regulated.
If you open a SeedInvest account, you will pay a 2% processing fee per investment. This investment fee can be a maximum of $300. If the company doesn’t hit its fundraising goal, the fee is returned.
Startup Fees
If you are a startup that makes it through SeedInvest’s due diligence, here are the fees that you may be subject to:
Placement Fee
Accepted startups must place 7.5% of what your company raises in investment as the placement fee.
Equity Fee
5% of what your company raises on SeedInvest is collected as the equity fee. If you fail to raise enough money, then you aren’t charged this fee.
Up to $3,000 in accounting fees will be reimbursed with the launch of a campaign.
SeedInvest: How does it Stack Up?
Account Opening
To open an account with SeedInvest, you need to go to their website. The account opening process will take longer than other types of investments since it is in a heavily regulated industry.
You will need to verify your identity and citizenship status by uploaded several different documents. When setting up the account, it can be an individual, trust, or corporation.
Since there is manual reviewing that’s required in this process, it may take one to two days for you to receive an application approval.
If you are a startup that wants to raise investment money on SeedInvest’s platform, you must create a personal account and add your business details to the profile.
Make sure that your company has done its own due diligence to prepare for SeedInvest’s extensive examination. Otherwise, you should not even try to apply, as only about 1% of startups make it past that process.
Overall, on both the investor and startup sides, opening up an account on SeedInvest is straightforward. You will need to have a bit of patience as you wait for a response, but that’s to be expected in the equity crowdfunding arena.
Ease of Use
Once you’ve created your account. It takes a matter of minutes to start invested using SeedInvest.
All you have to do is log in with your name, Social Security number, answer a couple of questions, and you can start browsing their different startups.
The entrepreneurs who want to raise money on the platform will have to jump through some hoops, however. Meeting their minimum requirements like having at least two full-time team members, having a proof of concept, at minimum viable product or prototype, etc. are starting points.
Transparency
SeedInvest has an FAQ on its website that clearly spells out all its terms and conditions. All the investment fees that are charged as also explicitly outlined.
There should be no surprises on fees regardless of whether you are an investor that wants to invest in one of their startups or a startup that is leveraging the platform to seek investment.
Customer Service
There is no public phone number or email address that’s listed on SeedInvest’s website. However, they do have a live chat box available on some pages.
That being said, it isn’t exactly easy to get help if you do have a question or concern.
If you have questions about the different offering types, crowdfunding regulations, etc. SeedInvest does have many different guides that could help.
Browsing Startups
If you’re considering an investment in a startup, SeedInvest makes it really easy for you to browse the companies available on their platform.
The detailed information includes the funding round type they are on, how much the money is seeking to raise, how many days are left in their campaign, and minimum investment requirements.
They don’t provide investment advice, but you should have everything that you need to make an informed decision.
Are They Trustworthy?
The Better Business Bureau is a great resource to find out how trustworthy a company is. Keep in mind that the ratings found there is not a guarantee that the company is reliable.
Currently, SeedInvest doesn’t have a page available on its website, however. It’s important to note that there are no major lawsuits or scandals that are part of SeedInvest’s record.
Bottom Line: SeedInvest
Angel investors and venture capital are great sources for raising investment money for startups. However many startups don’t have access to angel investing or venture capitalists to pitch for investment.
Then you have those regular individuals that wish to invest in startups. Most investments in this space aren’t available to these investors.
That’s where SeedInvest comes in to save the day! If you’re looking for an accessible way to invest in startups, give SeedInvest a try!
