3 Winners and 1 Loser from StartEngine's Acquisition of SeedInvest

They had JUST fixed the internet from when Kim K broke it, and unfortunately, StartEngine has shattered it once more.

The (arguably) #1 startup-investing platform announced this morning that they had entered into an agreement to acquire the (arguably) #4 platform, SeedInvest

SeedInvest was originally acquired by Circle in 2019; Circle is a cryptocurrency company that created USDC, a stablecoin that is pegged to the US Dollar

Many of the deal’s details are unknown, including:

• How much did StartEngine pay?

• Will SeedInvest continue to operate as a separate platform?

• Will I be able to think of a third bullet?

With such a gargantuan deal shaking up the space, let's take a look at the winners + losers from this deal

Before we take one step further, I want to disclose that I am an investor in StartEngine. I'm also an investor in Wefunder though - I just like being able to invest in startups, damnit!

Circle: Loser

• The update from StartEngine was victorious in tone, you could feel the the CEO Howard Marks thumping his chest as he typed out the update

• The update from Circle…well it sounded like a sad swan song written from the legal department. Here's a snippet of their email:

• As a whisperer of Parseltongue and corporate lingo, let me interpret this for you; 'we need to focus on our core business' = 'we are doing bad'

• It's no secret that crypto has had a tough couple of months, and it's likely that Circle needed to bring in fresh capital to improve its financial situation

  • Circle’s USDC coin got tangled up in the Terra/USDT implosion, and the market cap has decreased by $12B (-21%) in the past 5 months

• SeedInvest had potential, but Circle ended up integrating ZERO crypto features into the product and it no longer made strategic sense to own

• It’s also likely that SeedInvest was unprofitable at the time of the sale. As a result, I am making an educated guess that Circle sold SeedInvest at a firesale price

  • Some are saying the deal went down for less than my T-ball League rookie card

• As part of the deal, Circle also gained equity in StartEngine itself. While this could pan out to be a bountiful investment, it means they received less cash in the deal

StartEngine: Winner

• As I mentioned above, I believe StartEngine got a good price for SeedInvest. What else?

• SeedInvest doesn't brings any radical technological innovation to the table that StartEngine doesn't already offer…

  • The real value is in SeedInvest's 700,000+ strong user base

• A little secret & big problem that the equity crowdfunding space has is that the majority of funds don't come from the platform's user base

• 65-75% of funds raised typically come from the startup's own network. By nearly doubling it's user base, StartEngine is hoping it can shift that percentage split, which would entice more founders to raise on the platform

• Getting a strategic partner in Circle also means they give up less cash in the deal while getting a big backer in the crypto space

Wefunder/Republic: Winners

• You may think that the #2 + #3 (arguably) would be losers in this case, but they're not

• Each investing platform has different investment terms + structures (Convertible Note vs Equity anybody?).

• Founders don’t make decisions solely on the scale of the platform - these nuanced differences typically factor heavily into a founder's decision when choosing between platforms

• While StartEngine massively increased its user base, Wefunder + Republic have one less competitor to fight against when vying to host a hot startup’s raise

Equity Crowdfunding: Winner

•  In rapidly growing industries, you typically see a large amount of players enter the space. This often results in a period of consolidation - which is why your boy predicted this back in the beginning of the year:

• Acquiring a competitor that does the same thing as you is basically doubling down on your industry. And consolidation leads to stronger investment platforms, which will help court higher quality startups

Soooo I’m digging you, you’re digging me…let’s keep this flirtation-ship going!!

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