If you’ve ever watched Shark Tank and thought you’d like to be one of the sharks, you might just get your chance to do that. Several companies exist that allow their users to invest in startups. One you may want to check out is StartEngine. Here’s what you need to know about the startup investing platform to see whether it’s a good fit for you.
What is StartEngine?
StartEngine is an equity crowdfunding platform that allows investors to invest in new startup companies. The company launched its first campaign in 2015 and is led by CEO Howard Marks. Kevin O’Leary from Shark Tank fame is also a strategic advisor to the company.
To date, StartEngine has raised more than $500 million in funds for over 500 company offerings on the platform. The platform boasts a community of over 600,000 prospective investors, too.
How does StartEngine work?
Unlike startup investment platforms like Kickstarter and Indiegogo that give you rewards for donations to campaigns, StartEngine lets you buy actual equity and invest in the companies you support.
The company lists all of the startup companies looking to raise capital on its website. Simply browse through these investment opportunities to find the ones you’re interested in. A quick snapshot will show you the amount the company has raised so far, the number of investors, and the minimum investment amount required.
Once you find a company you may be interested in, it’s time to do a deep dive. Each company has an investor snapshot campaign video, financial documents, key reasons to invest, and what the company does. Research this information carefully to determine whether you think it will be a good investment.
When you’re ready to start investing, create an account. Then, click “Invest Now” on any campaign page to begin investing in a startup. You fill out some information about yourself and submit a payment method.
In some cases, a company may not meet its funding goal. If it doesn’t, your money will get returned to you within 10 business days after the offering closes unsuccessfully.
Investment options on StartEngine fall into two categories: Regulation Crowdfunding, also referred to as Regulation CF (Reg CF), and Regulation A+ (Reg A+). These regulations regulate how startups can raise money from investors and were introduced by the JOBS Act. These investments have different rules for startups raising money. They also limit how much you can invest.
- Reg A+: This allows non-accredited investors to invest up to 10% of their annual income or 10% of their net worth each year in Reg A+ companies, whichever is greater. Companies will be listed on StartEngine as Regulation A+ companies so you can keep track of these requirements.
- Reg CF: This limits non-accredited investors with annual income or net worth of less than $107,000 to investing a maximum of 5% the greater of the two numbers. If your annual income and net worth exceed $107,000, you can invest up to 10% of the greater of the two amounts.
StartEngine offers a wide variety of startups in more than 40 different industries, including advertising and marketing, biotechnology, consumer products, manufacturing, and technology.
Owner’s Bonus is a subscription program you can purchase at StartEngine. It costs $275 per year and is auto-renewed. When you have the Owner’s Bonus, you receive 10% bonus shares on investments you purchase, but only those that participate in the program. Not all investments have to participate.
The program gives you first access for the first seven days for new StartEngine Collectibles launches and priority waitlist positions when you want to invest in oversubscribed companies. Oversubscribed companies are companies that have met their funding goals. You can join a waitlist without Owner’s Bonus, but you get priority as an Owner’s Bonus subscriber.
You also get to hear about new bonus-eligible opportunities through email notifications before others on the platform.
StartEngine is a secondary market where non-accredited investors can trade their startup investments in Regulation Crowdfunding and Regulation A+ companies. Initially, only one company will be traded, but plans include adding more in the future.
This platform aims to allow investors to trade their shares in the startups they invest in based on the rules of the investments. As long as you’re able to trade your investments, you have the option to sell shares of companies you no longer want or cash out of those that were successful. Once StartEngine Secondary launches and is operational, you’ll get a 20% discount on the seller’s fee if you are an Owner’s Bonus subscriber.
What are StartEngine’s fees?
StartEngine charges fees for companies that are fundraising on the platform. If they choose, these companies may pass part of this fee along to investors. You’ll see a fee line item for 3.5% of your investment amount when you submit a transaction to invest in one of these companies.
Who can invest with StartEngine?
Some startup investing companies only allow accredited investors to invest. These are people with a net worth of at least $1 million, excluding their primary home or those with $200,000 per year in income as a single person or $300,000 per year in income when combined with a spouse. Accredited investors can invest as much as they’d like on StartEngine.
Fortunately, StartEngine also allows non-accredited investors to invest. There are limitations on the amount you can invest based on which regulation the startup is using to raise capital, though. Startups using Regulation A+ limit non-accredited investors to investing only 10% of their annual income or 10% of their net worth, whichever is greater, each year.
Regulation Crowdfunding limits people with an annual income or net worth of less than $107,000 to investing a maximum of 5% of the larger of the two numbers. If your annual income and net worth exceed $107,000, you’re limited to investing 10% of the higher of the two numbers.
Some companies on StartEngine may also require a minimum investment, which is listed on each startup’s page. As of February 2022, the minimum investment appeared to be about $100 based on the campaigns shown on StartEngine.com.
How much can you earn with StartEngine?
The amount you may or may not earn with StartEngine depends on the particular companies you invest in. StartEngine states it has “no control or insight into your investment after the close of the live offering,” and is “not permitted to provide financial advice.” It recommends you talk to a financial professional to discuss potential investment outcomes.
In theory, you can earn money in a few ways. If a company you own shares in decides to pay a dividend to shareholders, you could earn income from dividend payments. This is a rare occurrence in early stage companies because they’re focused on growth rather than paying out shareholders.
Another potential way to earn money with the companies you invest in through StartEngine is by selling your shares. However, the company whose shares you want to sell may not be publicly traded, which could severely limit where and whom you can sell them to.
If you’re able to sell shares, you would have to sell them at a higher price than you bought them for to make money. This would require the company to continue growing successfully, which may not always happen with startups.
If the startup is extremely successful, it may go through an initial public offering (IPO). At this point, shares would be traded publicly and you could sell them at the current market price.
Maximizing your earnings with StartEngine
Learning how to make money investing requires a lot of research. For example, maximizing earnings with StartEngine requires you to analyze startups with good investment potential.
These companies are not publicly traded and are often long-term investments. They’re also high-risk, with their performance varying based on whether they can survive and thrive after receiving a capital investment. For these reasons, there are no set strategies to maximize your earnings on the platform.
Common questions about StartEngine
Is StartEngine legit?
StartEngine is a legitimate startup crowdfunding platform. As of February 2022, the company had 600,000 prospective investors, had raised more than $500 million for startups, and had funded over 500 offerings.
You’ll need to do your due diligence on the companies you invest in within the platform to determine whether your investments will succeed. Remember, startups are risky companies to invest in and may fail. This could result in your investment becoming worthless.
Has anyone made money from StartEngine?
A few companies that have raised money on StartEngine have become available to trade on over-the-counter (OTC) markets. These aren’t traditional stock markets but are instead are organized networks of dealers that don’t follow the same rules as a traditional stock exchange.
Another company that raised money on StartEngine has issued a dividend payment. Unfortunately, because companies raising money on StartEngine aren’t publicly traded, information about company performance is difficult to find, including potential returns.
How much does StartEngine cost?
StartEngine makes money from the companies looking to raise money on the platform. That said, the companies can help offset this fee by having StartEngine charge investors a 3.5% fee of their investment.
How to sign up for StartEngine
The first phase of signing for a StartEngine account is simple. All you have to do is provide a username, your name as it shows up on your identification card, and create a password. To continue and open a StartEngine investment account, you must provide the following details:
- Cell phone number
- Employment status
- Marital status
- Number of dependents
- Date of birth
- Country of citizenship
- Social Security number (SSN) or taxpayer identification number (ITIN)
- Your investment objective
- Investment experience
- Annual income
- Liquid net worth
- Total net worth
- Answers about how you would and plan to invest
Alternatives to StartEngine
StartEngine isn’t the only startup investing platform. You may want to consider these other alternatives while learning how to invest in startups.
SeedInvest is a community of over 620,000 investors considering investing in startups. The platform has raised more than $410 million for startups through the site.
You don’t have to be an accredited investor to invest through SeedInvest, though some investments are limited to accredited investors only. You can look at the details startups have provided to help you decide if there are any companies you’re interested in before you sign up. This information is only public for startups that allow non-accredited investors to invest.
AngelList allows you to invest in startups differently but only works with accredited investors. Although it supports investing in individual startups through its Syndicates product, AngelList offers two other options.
The first is called RollingFunds, which allows you to invest quarterly through a venture capital fund. The second is Managed Funds, which allows you to invest in a group of startups every quarter. The minimum investments through AngelList are often very high, though. Expect to have to invest at least $10,000 per quarter.
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