A few years ago I had discovered crowd funding, individual investors could get access into early stage companies. Some of them would perish, some would grow slowly and some would IPO. The strategy was to sprinkle your investments so overall you may come ahead.
This year finally something miraculous happened, one of the companies that I had invested in IPO’ed. DSTLD or Digital Brands Group finally IPO’ed. To call the whole thing a shitshow would be an understatement. The reddit thread here captures most of the new action but I will try to summarize my understanding of the situation, why investors lost out and what changes I am making to my portfolio. Spoiler alert: I made no money (atleast for now)
The company Digital Brand Group used incentives to drive up individual investors investing in their company(offering store credit in exchange for investment). I infact invested twice in the company, once via SeedInvest and once via Startengine. Apart from those two platforms, from the thread it seems apparent that the company also did a convertible note via a site called WeFunder which I have never used (Thank God).
A few things happened with the IPO. The IPO seems to have completed earlier this month but most crowdfunding investors don’t even have access to their shares. Not that it matters, the company although has increased its value has reverse split the stock making a loss for each one of its individual investors. I don’t have access to my stocks yet(cue shitshow, however the CEO Hil Davis made a mockery of the early investors by sending an email as late as November with the following quote(I got this letter from reddit, but multiple sources have confirmed this is true):
“In Closing The original founders, Corey Epstein and Mark Lynn launched the first Reg A+ because they believed that the individual investor should make money early on in great companies, not just the Private Equity and Venture Capitalist firms. This offer shows everyone how much we continue to believe in this direction.”
It is super ironical because each individual early investor stands to lose money at this time if they liquidate. There is no guarantee on when(and if) they will make money. Its possible in the future one may be able to turn a profit, however at this time the company has been caught vastly unaware and no individual crowdfunding investor has access to the stock they had bought. The platforms of Startengine, WeFunder and SeedInvest are all blaming the company and the company blames them. The loser is the investor who trusted their money to this company. As of writing this post none of the three platforms seem to have gotten their shit together and Vstock which is supposed to handle the transfer of stock has not responded to my emails.
My future investments in crowd funding
Overall I have invested in over a half a dozen pre-IPO companies via crowd funding. Another shitshow is Trubrain in which I had invested also via Startengine. The company is now doing another round of crowdfunding more than a year later at the same valuation. While claiming the company is doing great, they basically told every investor who had invested early that their money has gained no value. The company is defending against criticism in their latest offering. I think the criticism is fair and the company has just showed a good old fashioned middle finger to its investors.
Similarly, most other investments via StartEngine have been shitshows. Startengine also invests in the companies themselves but post closing of investments provide zero support to companies and/or investors. Another company I had invested in ‘Glow Beverages’ struggled to get terms of its convertible note updated via startengine. The CEO of the company told me he had no luck escalating to StartEngine’s CEO for help. Eventually they had to circumvent start engine to modify their note.
My experience with start engine support has been equally bad. The support is mostly useless and responds with irrelevant things when asked questions about investments.
Between Kickfurther(don’t touch with a 20000ft pole) and Startengine type crowdfunding campaigns i have lost money almost everywhere, the only diamond in the rough for me has been TerraCycle which increased its dividend this year and seems to be a pretty solid company. I feel like that is one company that may end up helping me break even or even come out ahead. I also made some money in TelaDoc which was from a platform that eventually shut down.
My future investments however will never touch Kickfurther or Startengine and I would recommend you to do the same. As is clear from the post, I am invested in a number of companies via these platforms. For the time being, I am exploring complaining to SEC and FINRA for the shitshow that has ensued. While institutional investors are able to sell the stock, investors like me are struggling to get custody of our investments.