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EQUITY CROWDFUNDING PLATFORMS | Solid Investments Or Flushing Money Down The Toilet?
Dec 1, 2022
Taking a look at Equity Crowdfunding platforms such as Sparkcrowdfunding.com to see how these investments stack up against other types and investments.
Millions have been invested into private companies via crowdfunding in recent years by retail investors. In todays video I take a look at the risks versus the rewards of making such investments.
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This video was made for educational purposes only and does not constitute financial advice.
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One of the biggest innovations in investing over the last couple of years have been equity
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crowdfunding platforms. They allow small private companies to raise money by issuing shares to the general public
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so they can grow their businesses. Millions have already been raised on platforms such as Spark crowdfunding
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As you can see here, companies set the target of how much they want to raise and the percentage
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of the company that they are willing to give away in exchange for that
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With such large amounts of money being invested by retail investors, I wanted to take a closer
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look at these investments to see if you are actually just throwing your money down the toilet or are they an actual legitimate investment opportunity
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The first unfortunate fact of life that you need to be aware of before you invest in any
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of these companies is that 90% of startup companies fail. Straight away that means you
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have a 90% chance of losing all of your money. Secondly, the price per share that you are being offered by these companies can often
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be well overpriced. You need to be acting like you're somebody from Dragon's Den and
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really interrogating all of the figures that they put forward to see if the valuation that the
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company is putting on itself makes any sense at all. Because you don't want to make the mistake
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of paying well over the odds for the shares in the company. If you do that then you are losing
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before you even started. Let's take a quick look at two companies that are currently raising money
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on sparkcrowdfunding.com to see if their financials add up. So the two companies I'm
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going to be taking a look at here are What's the Score and Starfolio. What's the Score which we'll
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have a look at first here is a live score digital platform for amateur sports clubs. So basically a
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score tracking app and this company was set up by Galway hurler Paul Flaherty. As we can see here
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the company is looking to raise €100,000 and they're 63% along the way to achieving that target
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and in return for this €100,000 investment they are going to be giving away 11.11% of the company
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So with these figures alone we can quickly work out what valuation the owners are putting on the
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If I divide 100 by 11 that works out as a valuation of roughly 900 euro So let do a little bit of digging now to see if this valuation makes any sense
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When I took a look at the company's latest set of financial statements, the company had a turnover of 10,000 euro
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So that is in 2020, which is almost a year ago now. Obviously, a valuation of nearly 900,000 in a company that is only doing turnover of 10,000 seems a bit much
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but maybe the company only started to ramp up in 2021. When we have a closer look at the investment
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document here it says they have generated over 30,000 euro in revenue so obviously another 20,000
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has come in in 2021. They themselves also say how they value the company here in another part of the
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pitch so they say about eight to ten times the annual recurring revenue. So the annual recurring
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revenue looks to be roughly between 20 to 30,000 at the moment so if you multiply that by eight or
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10 you're looking at about 240 000 to 300 000 is the actual valuation of the company today but if
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you are buying shares in this company at the moment you are going to be buying in at a price
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where the valuation of the company is actually 900 000 so you're really going to be paying for
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whatever potential future growth that they plan to have so the company is projecting to have
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500 000 users and 250 to 300 000 annual revenue so that is almost a 10 times jump from where they
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are today so you'd probably have to take those projections with a pinch of salt. So this projected
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revenue is how they are justifying that you are paying three times the actual value of the company
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as it stands. I do also understand that maybe a lot of people that are going in and investing here
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may not have a big profit motive and they may just want to see the company do well and they really
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like the product and in by no way do I want to talk down this as an investment. I hope they actually
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raise all the money that they need but I just want to highlight the risk versus reward if you are
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really entering into this trying to make some profits because if they are really motivated and
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do hit their 250k target for revenue then the company would be valued at about 2 million versus the value you are entering in at about 900 So you make roughly 150 profit if the company was bought out So the second company
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that we're taking a look at here is Starfolio, which is an online platform that enables brands
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and fans to book and connect with influencers. So this company was set up by Ross Byrne
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the Leinster fly half, and they are looking for 300,000 in exchange for 16.67% of the company
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and they are 19% towards their target at the moment. So if I do the same again and divide this 300,000
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by the 16.67% that they're giving away, that means they are putting a valuation
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on the company of 1.8 million. So what scares me a little bit about this one now
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is that they're putting a valuation of 1.8 million on the company and it hasn't even made one euro of revenue yet
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So it is completely untested and hasn't been validated from a business point of view
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However, they are forecasting revenues of 2.3 million after three years and a net profit of 770k. It's hard to know how they are coming to these figures
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when they haven't started actually making any money yet but if they do manage to hit those
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levels of revenue then they are saying that the industry multiple is 20 times revenue so they
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could be worked up to 15 million eventually but 2.3 million in revenue after three years looks
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pretty hopeful to me. So they say they have 200 influencers already registered with profiles and
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on board which include the likes of mayo footballer killian o'connor and leinster rugby player luke
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mcgrath and the rest of the people here i actually haven't a clue who they are so they don't really
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have too many stars on board yet by the looks of it how they are actually trying to justify their
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valuation is by saying that they have leading edge proprietary technology and access to top
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talent globally but when i went to have a look at the company's actual financial statements all they
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do have at the moment is just the company's shares on it they don't have anything like technology or
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any intangible assets on their balance sheet which you would expect if they have some sort of
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technology but this balance sheet is only up to the 22nd of april 2021 maybe it has been added in since So if I was considering investing in this company that would be one question I would definitely be
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asking is who actually owns this proprietary technology is it actually owned by Starfolio
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Limited and you can actually ask them questions on the discussion board here on sparkcrowdfunding.com
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Now let's say you have done all of your due diligence and you have decided that you are
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going to invest in one of these companies. Here are some other vital bits of information that you
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need to be aware of. It's going to be very difficult, if not impossible, to sell your
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shares in the company because there is no secondary marketplace where you can buy and sell
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shares in private companies. It's not like owning Tesla shares, for example, where you know there is
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a market with millions of people constantly buying and selling the shares where you can go and offload
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them whenever you want. The aim of most of these companies on SparkCrowdFunding.com is to be bought
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out within a couple of years and that essentially is your exit plan. You are hoping that in a couple
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of years this company will be bought out for a much higher valuation than was put on it today
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Up until that point it is very unlikely that you will receive dividends from any of these companies
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as they will be reinvesting any cash that they have into further growing the company. So once
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you do invest in one of these companies it is better to try and just put it completely out of
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your mind. It is a bit of a moonshot. Hopefully someday it will be bought out. One positive about
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investing in one of these companies is that you can get tax relief through the EIS scheme
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Essentially what the scheme allows you to do is to claim back the income tax on the amount that
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you invested in the company. So say you invested €1,000 into the company you may be entitled to
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€400 back. So that is pretty much it for my look into these equity crowdfunding opportunities
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Let me know what you think about these in the comments. Have you ever invested in one or would
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it be something that you are interested in or stay a million miles away from? Obviously it is
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great to see Irish companies get funded, but you as a shareholder need to try and get some value out
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of it as well. So I hope you enjoyed today's video. Thanks very much for watching. If anybody
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is new here, make sure and subscribe and I'll see you guys in the next one
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