🚩 Red Flag Alert

Let’s dive into the 3 stories in equity crowdfunding this week…

• ⚡️ Tesla x Crowdfunding: An electric partnership takes shape

• 🚩 Red Flag Alert: I don’t like when startups do this

• ⏳ Brace for Q1: Are we about to see a wave of startups fundraising?

Tesla x Crowdfunding

A win for my portfolio, crowdfunding, and robotic baristas…

Back in February, I remarked that I would invest in a startup that was working on a robot-barista:

The big man upstairs must’ve heard me, because shortly afterwards CafeX announced a community round. I promptly invested.

Fast-forward to this month, and CafeX made a huge splash with a cameo in Tesla’s reveal video of their new Germany gigafactory. The lobby prominently features a CafeX barista station, with the robotic arm branded in Tesla red.

The video has had huge reach, with over 22M views on X alone. CafeX nabs a huge partner in Tesla, expands the number of their locations, and gets a crazy amount of free exposure.

Hopefully, this can spur more demand for CafeX locations and propel the startup even higher.

Red Flag Alert

This photo gives me the ick.

Mode Mobile is a startup that is raising a community round. Truthfully, I don’t really know anything about them. But after scanning their raise page, I saw a section that showed their exploding stock price.

Whenever I come across a startup that does this, my investor senses start tingling.

Why? Because it’s 100% meaningless and deceptive.

In an equity crowdfunding raise, the startup gets to set the share price and valuation. And they can make the share price whatever they feel like. In Mode Mobile’s case, the share price has appreciated 1,500%… because that’s what they set it at.

The company is attempting to depict past success with this chart, but it’s entirely manufactured by themselves.

Now I’m not saying that Mode Mobile or other startups that do this are fraudulent - heck, they could actually be doing great and share price appreciation could be warranted. But I think overall it’s deceptive to retail investors that aren’t familiar with how the process works.

Besides, I’m more interested in startups that are talking about things that actually matter at this stage - revenue, user traction, etc. Usually a startup focuses their pitch elsewhere if these metrics aren’t encouraging.

BRACE FOR Q1?

STAMPEEEEEDEEEEEE!!!

Back in the good ole days (near-zero interest rates), money was practically falling out of the sky. Particularly for startups, 2021 was a year where many opted to raise funding at juicy valuations.

Many venture-backed startups seek fundraising every 18-24 months. That means that the vintage of startups in 2021 are just about due for more funding and will return to the investor watering hole.

The cycle appears to be playing out slightly longer than the typical 18-24 months, and The Information conjectures that startups have made dollars stretch further in the downward cycle.

However, cash-burning startups will eventually need more money - and they’re in for a rude awakening since valuation will most certainly be lower than in 2021.

It’s possible that some of these startups opt for alternative funding, via equity crowdfunding. Wefunder has been the most successful at nabbing high-pedigree startups (Replit, Substack, Mercury). We’ll see if they’re able to wrangle some of the startups that don’t want to run through the VC gauntlet.