The hidden protectors of crowdfunding

TAKE A PEEK AT THIS DEAL

(RAFFLE INCLUDED)

This company is awesome.

Blind Barrels is a whiskey subscription that sends members a ‘double-blind’ sample of whiskey from small-batch distilleries.

You get to sample 4 bottles of high-quality whiskey, not knowing the maker until scanning the QR code label.

They’ve been absolutely crushing it, here’s how revenue has been trending…

• 2022: $174,000

• 2023: $520,000

• 2024 Projected: $1,100,000

A few things I love about this business:

1. They’re not one of those cash-burning subscription businesses - they’ve been profitable since 2023 and have reinvested excess profits into growth

2. TONS of growth opportunities - tequila & craft beer boxes. Blind Barrels is also partnering with hotels to make their boxes available to guests. And members can now purchase bottles of their favorite samples on the site.

3. Members LOVE it - 40% of customers are finding blind Barrels from organic search, and only 4% of members churn (industry avg: 10-15%)

So here’s the deal. Blind Barrels is currently raising on Wefunder and there is still a chance to get in on the Early Bird valuation.

To sweeten the deal, you can win ALL of the below ($130 value) just for checking out their funding page:

1. A subscription box of Blind Barrels (includes 4 whiskey samples, a great gift)

2. Blind Barrels Tasting Glass

3. Blind Barrels Hat

👇 Click to see their raise & be entered into raffle 👇

(In partnership with Blind Barrels)

BEHIND THE SCENES OF DUE DILIGENCE

Startups are messy.

In most cases, they go through a ‘car wash’ before getting to investors

That car wash makes sure that the startup comes out sparkling clean for potential investors. This week I learned all I could about one of the biggest car washes out there: CrowdCheck.

CrowdCheck has been around since 2012, old enough to be considered an OG of crowdfunding. The organization is woven into the fabric of crowdfunding, having struck partnerships with StartEngine, Wefunder, Dalmore Group, and many other crowdfunding platforms.

Right now they’re on the cusp of breaking 1,000 startups that they’ve diligenced. 

Some of the startups they’ve done diligence for proudly flash the CrowdCheck verification seal to signal their trustworthiness to investors.

Up until last week, that meant absolutely nothing to me. I had no idea what the CrowdCheck vetting process was, so I got on the phone with their CEO and Chief Product Officer.

START-UP THE DUE DILIGENCE PROCESS PLEASE

CrowdCheck Inc. operates two complementary offerings in the crowdfunding space:

1. CrowdCheck Law - provides legal services to startups to prepare them for filing Reg A + Reg CF rounds with SEC

2. CrowdCheck Inc - conducts due diligence for startups, to provide a Verified Check and a detailed due diligence report to potential investors in the offering

Because of their background in law, the diligence process is extremely extensive. I was fairly impressed with the breadth of checks that CrowdCheck goes through before giving their stamp of approval.

When all is said and done, CrowdCheck goes through a 59-page checklist with each company.

I won’t go over every single detail that they cover, but here’s a couple of highlights.

• Business Registration - If a company says they’re registered at 1 Startup Way in Delaware, CrowdCheck will actually go make sure they’re registered to do business at that address

• Background Checks - CrowdCheck runs a background check on the founder to see if they have a criminal record or other concerning details

• Existing Litigation - they’ll find out if the startup is involved in any ongoing litigation

• Banking Details - If the startup claims that they bank with a certain partner, CrowdCheck will verify this. They’ll also verify the accountant used in financial reporting.

• Patent Verification - Checks to make sure they own the patents they claim to have

• Cap Table Analysis - Ensures the startup actually has shares that they’re offering in the funding round

• Operating Bylaws - does the business’s charter actually allow for online fundraising through crowdfunding?

A lot of this is making sure that all the finer details are exactly the way they should be. Their Chief Product Officer shared an example of why the checks they do are so important.

One of the startups had failed to pay franchise taxes in their registered state of Delaware. CrowdCheck uncovered this in their diligence process, and the ramifications associated with it.

Failure to pay franchise taxes over a period of time could mean that you will become administratively dissolved and that you are no longer a legal corporation. Despite this, they continued to sell shares - in a company that did not legally exist. Total nightmare situation that CrowdCheck identified through their diligence process.

WHAT CROWDCHECK DOES NOT PROTECT

One thing that was enlightening to me is that there are limits on CrowdCheck’s due diligence efforts. What they are doing is making sure that a startup is procedurally able to go ahead with a crowdfunding round.

That does not mean that the startup will not misuse the funds or turn out to be a complete dud. There will still be founders that act in bad faith and become a scam. 

I should know - I’ve written exposés about a few of them and have even been sued for my writings - but luckily I’ve been able to wiggle out of any lawsuits. 

The reason I liken CrowdCheck to a car wash is because most cars (startups) come in dirty (or clean and just want that extra shine). Regardless, CrowdCheck makes sure they emerge squeaky clean and physically able to drive.

Now, those cars may immediately get into a 36-car collision. It also might be entirely their fault. CrowdCheck can’t protect against everything, but they’ll make sure the business entity’s structure is legitimate. 

WHAT DOES A DILIGENCE CHECK COST?

CrowdCheck’s verification process is thorough, and most of the work is still highly manual. As a result, the process typically takes a few weeks - although this can happen alongside the startup’s SEC filing process.

For Reg CF, the whole kit (SEC filing + diligence) comes out to a cost of $10,000. For Reg A deals, which allow startups to raise more money, the package costs comes out to $65,000.

In September, CrowdCheck released a lower-cost option called The Locker, which is available for $99/month.

Founders can lead the diligence process themselves, with the CrowdCheck team verifying their work. The appeal is that founders do diligence once, with the option to make minor revisions along the way as their company grows.

Their locker stores all the data in a centralized place that is easy to share with potential investors. Pretty cool idea that helps automate portions of the diligence process. 

That’s it for today - remember to click the Blind Barrels link up top (or here) to be entered into their giveaway!