STARTENGINE Q1 REPORT

NEW STARTUPS

Startups that you can invest in with as little as $100 right now:

🍃 Posh Outdoors - Iconic stays in nature (LINK)

 # Radhash - OS Automating the Startup Economy (LINK)

 👕 Laundry Hero - The "Uber" of Laundry Service (LINK)

📚 This AI writing tool grew 220% last year.

Authors A.I. is transforming the way books are written.

Their AI-powered platform can analyze books in minutes, quickly delivering a comprehensive report that's filled with valuable insights for the author.

Grab early equity in this fast growing startup (did I mention they were profitable last year?)

STARTENGINE’S MIXED BAG

I’m going to get some hate for this, but StartEngine had a mixed bag in Q1 of 2024.

How can I say this when revenue spiked 86% over last year’s Q1??

There’s a ton to unpack from this update, so let’s get into it.

Revenue came in at $9.8M, up from $5.2M last year, but it’s where the revenue came from that is more important.

StartEngine (SE) rolled out StartEngine Private in Q3 last year, so it’s a net new addition to this year’s report. In this offering, SE acquires a chunk of stock in private companies from other investors. They then sell that stock to accredited investors on their platform at a slight premium.

This segment caught fire in Q1, bringing in $4.7M in revenue. However, the profit margin on this segment is much lower (33%) than StartEngine’s other products.

This caused profit margins to plummet from 68% → 51% in 2024.

The way SE Private revenue is recorded is also slightly misleading. For StartEngine’s core crowdfunding offering, they are merely facilitating a transaction and collecting fees. So although startups raised $22.6M on their platform, StartEngine only recorded the $2.6M in fees they received as revenue.

With Private, StartEngine is acquiring inventory (stock), and selling it as ‘their’ product. Therefore, every dollar invested is counted as revenue. I understand why they do it this way, I just think it’s important to call out.

Addition of SE Private masks the company’s weak spots

Overall revenue may have jumped 86%, but StartEngine’s core business actually retracted in 2024. If you remove Private from the equation, StartEngine’s revenue is down -4% this year.

Reg CF dropped 12%. Reg A decreased by 23%.

StartEngine Premium and Secure (services for startups on their platform) also saw a slide in revenue.

All of these declines are a result of less startups hosting their raise on StartEngine. But there may be a silver lining here, depending on what you choose to believe.

StartEngine claims that they intentionally limited the number of startups on their platform to ensure that quality companies increased their chances of success.

There is some data to support this - despite a 45% reduction in the number of startups, total fundraising was only down 12%.

Translation: fewer startups were able to raise higher sums of money.

Venture Club Takes Off

Another bright spot on the report was StartEngine’s Owner’s Bonus, which has been rebranded to Venture Club. This loyalty program costs members $275 a year and grants a number of perks, like no trading fees and bonus shares.

Venture Club revenue surged from $782k to $1.4M in 2024 (+73%).

This is incredible to see since Venture Club operates at extremely high margins.

Costs Ramp Up, But Look Closer…

Here’s a look at how StartEngine’s costs changed from Q1 2023 → 2024

• General & Administrative: $1.9M → $2.6M (+40%)

• Sales & Marketing: $2.7M → $3.9M (+47%)

• Research & Development: vs $1.1M → $2M (+79%)

Hidden in General & Administrative is actually a nugget that reveals a brilliant tax strategy by StartEngine.

You see - back in 2023 StartEngine acquired SeedInvest in an all-stock deal. The value of this stock deal was roughly $24M at the time it went through.

StartEngine is essentially saying that the SeedInvest business will depreciate in value (all the way down to zero) over the next decade.

As a result, they are recording a portion of the $24M as a loss each quarter, which reduces their tax liability.

So to recap - StartEngine acquired a valuable asset without using cash, and can pay less taxes for for the foreseeable future as a result.

It’s a pretty great move, especially if StartEngine swings into profits and incurs a larger tax burden.

This detail also shows that G&A costs actually declined this year, if you remove the SeedInvest depreciation from the equation. Another great sign that StartEngine is managing their costs as they increase revenue.

The War Drums are Sounding.

StartEngine has a war chest.

Although cash went down $2M since last year, StartEngine is still sitting on a cash pile of $10.6M.

This provides a somewhat sizable runway to operate the business with a long-term view.

Additionally, StartEngine is sitting on a different kind of war chest.

Startup stock.

SE takes a slice of equity out of every startup that raises on their platform. This has amassed to $9M as of 2024 Q1.

This number is likely understated too - StartEngine applies a 33% discount to a large quantity of their stock due to the SEC’s accounting principles.

The hope is that some of these equity stakes will materialize into cash windfalls as companies exit/IPO.

It’s a mixed bag.

I honestly feel conflicted about this report. The lens to view it differs based on when you invested in StartEngine.

Had you invested in their latest round at $1B+ valuation, this report was not enough to show you that the company is worth anything remotely close to that figure.

But if you scooped shares off of secondary in the $200-$300M valuation range, this update is more favorable to your thesis.

StartEngine will need to revitalize growth in its core offering, ratchet up its Private segment, and continue bolstering its Venture Club program to fire on all cylinders.

I don’t like that the growth in this company is coming from a low-margin segment, so I think revitalization in the core segment is the most important indicator of long-term success for StartEngine.

I’ll need to see them expand this segment for me to be really bullish on their prospects moving forward.