Is StartEngine Legit?

IS STARTENGINE LEGIT?

Yes, StartEngine is a legitimate equity crowdfunding platform that allows startups and small businesses to raise capital from individual investors. Founded in 2014, it is one of the largest and most established platforms of its kind in the U.S., operating under regulations set by the U.S. Securities and Exchange Commission (SEC).

Here’s why StartEngine is considered legitimate:

REGULATORY COMPLIANCE

SEC Regulation: StartEngine operates under Regulation Crowdfunding (Reg CF) and Regulation A+, both of which are legal frameworks provided by the SEC. These regulations allow startups to raise funds from non-accredited investors, giving the general public access to early-stage investment opportunities.

Equity crowdfunding is a relatively new industry - the JOBS Act (Jumpstart Our Business Startups) was only passed by Congress in 2012. Prior to this legislation, it was near impossible for non-accredited investors to participate in startup investing.

Registered Broker-Dealer: StartEngine has its own in-house registered broker-dealer, StartEngine Primary, which ensures compliance with securities laws and enhances investor protections. It’s also registered with the Financial Industry Regulatory Authority (FINRA), a key regulatory body for broker-dealers in the U.S.

TRANSPARENCY ON THE PLATFORM

Companies that raise money on StartEngine are required to disclose financials, business plans, and risks to investors. For Regulation A+ offerings, companies must file detailed offering circulars with the SEC, which are available for public review.

To access these documents, one can either use the SEC’s document search tool, or click on the document links on each startup’s fundraising page.

Investor Communication: StartEngine provides investors with the ability to ask questions directly to startups and see ongoing progress reports and updates, fostering a transparent investment process.

STARTENGINE’S TRACK RECORD

Successful Campaigns: StartEngine has hosted hundreds of successful fundraising campaigns since its inception, raising capital for businesses in various industries including technology, consumer products, and media. Some notable campaigns have raised millions of dollars.

StartEngine is financially motivated to ensure that the startups hosted on its platform are successful. StartEngine receives a small amount of equity in each startup that raises funds on their site, which only carry value if the startup has a successful exit.

Partnerships and Notable Advisors: Kevin O’Leary, of Shark Tank fame, is one of the platform’s strategic advisors and a prominent advocate for StartEngine, lending credibility to the platform.

The CEO of StartEngine is Howard Marks, who played a pivotal role in building Activision into the multi-billion dollar company it is today. Howard frequently hosts webinars to answer investor questions, lay out StartEngine’s strategy, and transparently speak with users of the platform.

INVESTOR RISKS AND PROTECTIONS

High-Risk Nature: As with all early-stage investing, investing in startups on StartEngine is inherently risky. Many startups fail, and there’s no guarantee of a return on investment. Investors should understand that equity crowdfunding investments are speculative and illiquid (i.e., you can't sell the shares easily).

It’s important to take on a portfolio approach to startup investing to mitigate risk as much as possible. Spreading your investment dollars across a number of high-quality startups places less reliance on one individual company to provide you with a financial return.

There’s varying advice for how many startups make up a diversified portfolio, but I would loosely recommend building up at least 10-15 startups as you get started. I would also recommend that startup investing is only a component of your overall investment approach - including additional investment options like stocks, bonds, and real estate can further protect your assets via increased diversification.

Due Diligence Required: While StartEngine is legitimate, it is crucial that investors perform their own due diligence before investing. The platform does not guarantee the success of the startups listed, and investors could lose their entire investment.

STARTENGINE SECONDARY MARKET

StartEngine offers a secondary market, one of the few equity crowdfunding platforms that allows investors to trade their shares. This feature adds liquidity to the investments, but it’s still relatively new and may not have high trading volume.

There have been no reported issues of fraud through this marketplace that I am aware of, so it appears to be well-regulated by the StartEngine moderators.

THINGS TO WATCH OUT FOR

Risk of Startups: Even though StartEngine is a legitimate platform, investing in early-stage companies always carries significant risk, and most startups do not achieve significant exits or IPOs. The majority of companies on the platform are high risk, with only a few potential for high rewards.

Fees: StartEngine charges companies a fee to list on the platform, and investors may also face transaction fees. Make sure to review these costs before participating.

Deal Terms: Each startup on StartEngine’s funding portal has their own unique deal terms. This can include:

• Valuation

• Types of shares (common vs preferred)

• Liquidation Preference

• What the company will use the funds for

In conclusion, StartEngine is a legitimate and well-regulated platform. However, as with all investment platforms, it’s essential to approach crowdfunding with caution, understand the risks involved, and conduct thorough due diligence.

I cover exciting startups in the space and have personally invested into 40+ ventures, which you can view here. If you’re interested in learning more about startup investing, click below to subscribe to my free newsletter!