🎲 Republic takes $5M to the Casino

Welcome to this week’s edition of CROWDSCALE, where we bring Shark Tank to your inbox. We’ve got 3 great stories this week:

• 😴 Yawn: Boring businesses can produce not-boring returns

• ⛓️ Blockchain Buddies: Republic invests $5M+ into blockchain startup

• 💩 Calling Bullsh*t: Two companies that I don’t believe in

Last week, a startup I invested in years ago announced that they were issuing a $100,000 dividend to investors.

No, they’re not exploring space or creating game-changing medicine. They repair sidewalks. It’s about as boring of a business as you can imagine. And here’s the thing - boring business-to-business companies can often be the most profitable ones.

One of the ‘boring’ startups that I’m invested in is actually my largest holding (by a landslide). I’ll spare you the technical details, but they essentially created a really powerful data compaction software. Data is everywhere these days, so it’s a solution that is only growing in importance.

The company, AtomBeam, has some major traction and just inked a $1.2M(!) contract with the U.S. military this month. There’s no guarantees, but this ‘Phase II’ level contract is often a stepping stone for larger contracts with the government (think $15-$20M).

Now I’ve worked with multiple startups to produce promotional content. I always request payment in cash, as it helps me grow Crowdscale in the near term. AtomBeam is the only company that I have allowed to pay in company stock for my services because I believe so strongly in their potential. In fact, they’re paying me in stock to sponsor this segment right here.

If you want to join me as an investor in AtomBeam, this might be your last chance. Their investment round closes this week, and they’ve signaled that this is it!

Last week, Republic announced that it was spending $5.25M to acquire a 9.5% equity stake in INX, a blockchain company that focuses on Decentralized Finance (DeFi) solutions.

The deal, comprised of both stock & cash, values INX at roughly $50M. One potential outcome of the partnership could be to address the issue of liquidity in private markets. Right now, startup investments are mostly illiquid and therefore untouchable for years after the initial investment.

Through INX’s tokenization infrastructure, Republic could potentially offer startup ‘tokens’ as a means of ownership to companies hosted on their platform. This would provide liquidity as owners could trade their tokens on an ongoing basis.

Republic is all in on blockchain and new fintech solutions. Between their own token (Republic Note), metaverse fund, and many crypto investments - this partnership only confirms their resolve in this space. I do admire that they’re sticking to their guns, even when blockchain/crypto are languishing in perception.

However, I question if this is the proper allocation of company funds, given that they are frequently behind StartEngine + Wefunder in terms of investment volume. The equity crowdfunding industry is small enough as it is, layering blockchain solutions to a customer journey could further deter people from participating. StartEngine’s secondary trading market has proven that liquidity can be added without the use of blockchain.

The investment could have been put towards building out their user base or hiring talent. But I’m not inside all the deal details, so these are just thoughts from the outside!

I’ve scanned hundreds (maybe thousands!) of deals at this point. I like to think I’ve developed a little bit of a BS detector as a result. I don’t have data to support these claims, but here are two popular startups that I think are destined to fail.

FanBase (raised over $3.3M on StartEngine at an $85M valuation)

• What it is: They’re building a social network where creators can charge a subscription to view content - basically a kid-friendly version of OnlyFans.

• Why I don’t believe: FanBase is merely a feature to existing social platforms. Meaning, Instagram could easily roll out subscriptions and squash them. Twitter has actually recently implemented the paid subscription feature, so it’s already happened to an extent. FanBase has no moat and does not yet have a strong enough user base - I think they’re dead money and would not invest in them

Rentberry (raised $15M+ from various platforms)

• What it is: A Zillow/StreetEasy competitor focused on long-term rentals

• Why I don’t believe: Their claim of 2M users does not pass the sniff test. I live in New York (one of their ‘largest markets’) and the rental market is huge here. Nearly everyone rents, and people move around frequently. I have never heard of Rentberry, nor have any of my friends. Add this to an oddly low number of app downloads/reviews and it doesn’t check out. Something seems off with this one!

That’s it for this week, good luck out there!

Please note that this is not financial advice, nor a recommendation to invest in any of the startups mentioned. Readers should conduct their own due diligence and understand that startup investing is a risky asset class.