Along with the impressive returns investing in startups can bring, so too does the industry bring risks to both the investors and businesses. We at Fund Wisdom list and review platforms to help avoid risks and expose fees, while also partnering with a number of services now available to address these risks.
A due diligence and disclosure company for online offerings providing transparency and investor protection to platforms, investors and entrepreneurs. Sara Hanks, Founder and CEO of the firm recently shared with us, "We help to make sure the investor has the tools to make an informed investment decision. We thus protect the issue, the investor and the intermediary."
Bad Actor requirements
We offer information on fees and pricing for investing portals.
Insurance by AIG
a rating system that let entrepreneurs rate their investors. The interface is poor, but the data is robust on the larger funds. It claims to be the "Yelp of Venture Capital" and was created to allow portfolio companies to rate their investors.
U.S. Securities and Exchange Commission (SEC)
Office of Investor Education and Advocacy
100 F Street, NE, Washington, DC 20549-0213
Telephone: (800) 732-0330
Financial Industry Regulatory Authority (FINRA)
FINRA Complaints and Tips
9509 Key West Avenue, Rockville, MD 20850
Telephone: (301) 590-6500
Has a graph comparing Seed Investors and is completely free.
$499/month starting price
Both Fund and Firm Analysis with an investor Mosaic empowering Limited Partners and Founders with a 30 day trial
$1,199/month starting price
We published this article on how to use each.
Platforms - Many Online investment platforms themselves perform their own due diligence officiating those that list on their sites. This is due in part to regulatory obligations and potential liabilities which due diligence can shield them both from.
Fee risks & Quality of Offerings
Investors and entrepreneurs can exchange capital and equity on platforms and for this service, the platform receives compensation either in up front fees or fees structured to the deal itself.
At Fund Wisdom we review platforms prior to working with them. We have chosen not to work with a few platforms due to their standards of vetting not meeting ours. We have chosen to not include Angel Investment Network, a UK-based platform that states they have "the largest database of investors worldwide" with "3,500 angel investors from the US and the remaining amount are spread across 22 other countries." This is due to the quality of offerings and compensation structure. Entrepreneurs report that upon creating a company profile they receive an email notification from AIN that a number of investors were interested in their equity offering. However, in order to be further connected with these investors, the entrepreneur must pay $99 to the platform, known as a "pay-to-pitch" policy. Contact us for more information.
Bill Southworth, CEO of the renewable energy startup company Elecyr, used EquityNet for one of his earliest funding rounds. He has reported that one of the investors had gone so far as to steal the identity of a genuine angel investor. Once Southworth made this discovery he immediately took down his listing on EquityNet.
With Title III Equity Crowdfunding laws soon to be passed investing will be possible for anyone, no matter who they are or how much money they make. Previous to May 16, 2016 only accredited investors were allowed to invest in venture investment offerings, which we explain further in our investor section. Accredited investors are those high net-worth investors, who are certified by the Securities and Exchange Commission (SEC) to invest a percentage of their income in exchange for a stake in the company. Equity funding through portals provides an incredible opportunity for investors and startups to exchange equity and capital in a more efficient manner.
Investing portals and changing laws have created opportunity and incredible potential for both businesses and investors. While investors and entrepreneurs need to be aware of the risks involved in this new market, this form of financing creates the potential for huge rewards. This has the potential to spur economic expansion and job creation. The increase in capital for innovative ideas this market produces will change the business life cycle completely.
For more help on services to help with risks contact us.