Spotting Red and Yellow Flags in 2024 Equity Deals

CHART OF THE WEEK 📈

By Léa Bouhelier-Gautreau | Read

Startup investing is time-intensive. Investors often screen dozens—or even hundreds—of deals to find a few promising opportunities, followed by extensive research to evaluate each company’s potential. Kingscrowd simplifies this process by doing the heavy lifting for you. In addition to aggregating and rating deals, we’ve developed the Deal Considerations tool to help investors identify red and yellow flags. These flags highlight risks like potential failure, low growth prospects, or unfair deal terms. To provide context, we analyzed 857 equity deals rated in 2024 to identify trends.

• Low Runway - Many startups begin raising funds with insufficient runway, increasing their risk of failure during or shortly after their campaign. When investing, ensure the company is raising enough to sustain operations until the next funding round.

• Shareholder Stock Sales - Among 22 Reg A+ deals we rated this year, 36% included shareholder stock sales, a practice not allowed in Reg CF campaigns. While this can help founders and early investors cash out, it reduces the funds available for company growth. For example:

  • Moderate Example: Reticulate Micro allocated only 2.3% of shares sold in its raise for this purpose.

  • Concerning Examples: Mode Mobile (25%), Avvenire Electric (25%), and StartEngine (20%) allocated substantial portions, reducing growth potential for new investors.

• Repurchase Rights - A staggering 30% of deals include repurchase rights, allowing companies to buy back shares at arbitrary prices. These rights are especially prevalent in Wefunder SPVs due to the deal's structure. Repurchase rights only become an issue if used the wrong way.

• Unclear Valuations - About 14% of the 558 rated deals selling common or preferred equity or tokens don’t publicly disclose valuations. Our team estimates valuations using share price, outstanding shares, and option pools, but discrepancies arise if founders issue additional shares post-disclosure. Without transparency, overinflated valuations can make deals less attractive. Investors should demand clarity from founders and platforms.

• Outrageous Revenue Multiples - Deals with unjustified revenue multiples can hurt returns. In 2024, 11% of equity deals had multiples exceeding 75x revenue, a figure that jumps to 18% for companies with at least one year of revenue.

• Poor Revenue Performance - Even if only 5% of deals reported revenue drops of 50% or more, it actually represents 10% of deals with at least two years of revenue history. Such declines can indicate companies raising funds to survive rather than grow.

• Uncapped Future Equity - Deals with uncapped Convertible Notes or SAFEs are hazardous, representing 2% of all deals but 5% of these specific securities. Without caps, early investors risk dilution and uncertain returns.

Deal Considerations is a tool available to EDGE users on all rated equity deals.

INVESTMENT ROUNDTABLE

By Sam Fiske / Watch

From record-high active deals to platform dominance and valuation insights, the Kingscrowd Investment Roundtable breaks down everything you need to know about equity crowdfunding in 2024. Our team analyzed data from thousands of deals to bring you the latest trends and projections for 2025. Key takeaways include:

• Market performance: How the industry has evolved since its 2021 peak.

• Platform trends: Discover which platforms led the charge.

• Diversity matters: Women-led teams hit record deal participation.

• Valuations: Why they remain high despite economic challenges.

Get the full breakdown and actionable insights from this year’s crowdfunding data.

PITCH REVIEW 💸

By Léa Bouhelier-Gautreau \ Deal Report

Brief: Jupiter operates in the Food, Beverage, & Restaurants industry, specializing in the online grocery sector. Its AI-powered platform bridges the gap between digital recipe discovery and grocery shopping, enabling recipe publishers to create online stores and connect with digital grocers for seamless ingredient delivery. This streamlines the process for consumers, turning recipe inspiration into actionable purchases.

By addressing the disconnect between finding recipes and acquiring ingredients, Jupiter simplifies the experience for consumers while unlocking monetization opportunities for publishers. Its partnerships with digital grocers ensure efficient order fulfillment, allowing customers to conveniently purchase and receive all necessary items with minimal effort.

Key People: The leadership team combines diverse expertise to align with the company’s strategic goals. Chad Munroe, Co-founder and CEO, draws on engineering experience from SpaceX and Pratt & Whitney to lead technological advancements and operational strategies. Anuraag Nallapati, Co-founder and COO, uses his background as Head of Business Analytics at Ecom Express to optimize logistics and data-driven decision-making. While the team’s strengths in engineering and analytics are well-suited to the company’s objectives, additional focus on marketing and strategic partnerships could further support growth and competitive positioning.

Here's what we like: Jupiter is thriving in the $24.3 billion U.S. online grocery market, growing at 26.8% annually. By integrating AI-powered recipe inspiration with grocery shopping, they’ve created a seamless, convenience-focused experience that sets it apart from broader competitors. Strategic partnerships with digital grocers enhance its service depth, while a 220% revenue increase—from $262k to $841k—and a $2.4 million advertising revenue run rate underscore its strong growth trajectory.

Leveraging emerging AI technologies and expanding its platform, Jupiter is well-positioned to capitalize on industry trends and explore new markets. With its innovative approach and strategic market positioning, the company has significant opportunities for growth and success in the competitive online grocery space.

Here's what we don't: They face notable challenges in a highly competitive online grocery market dominated by major players like Instacart, which, while currently a partner, could potentially become a competitor. This competitive pressure creates barriers to scaling and capturing significant market share, raising concerns about Jupiter’s long-term growth prospects.

Financially, Jupiter’s high revenue multiple of 29.7x suggests possible overvaluation, which may deter risk-averse investors. Additionally, its pre-profit status highlights concerns around cash flow management and financial sustainability. With a reliance on a niche, convenience-driven consumer base and digital grocer partnerships for fulfillment, Jupiter’s scalability and operational resilience face significant limitations, further complicating its path to sustained success.

LAST POLL RESULTS

Would you invest in Sorting Robotics?

🟨⬜️⬜️⬜️⬜️⬜️ 👍 (2)

🟩⬜️⬜️⬜️⬜️⬜️ 👎 (2)

4 Votes

STAFF PICKS 🌶️

Greyledge Technologies

Greyledge Technologies’ research is focused on blood, bone marrow, and adipose cell therapy products, along with AI-driven data analysis and medical device automation. The business currently operates 11 processing labs across the US and Europe and plans to expand further to optimize treatment consistency through data-driven analytics

• Valuation Cap: $25 million

• Minimum Investment: $500

In Charge One

In Charge One’s patented technology turns business sockets into revenue-generating charging stations and has huge potential in malls, cafes, hotels, and airports. It’s the first-to-market charging solution with no direct competitors.

• Valuation Cap: $6 million

• Minimum Investment: $100

Zero Carbon

Zero Carbon’s technology will help to convert sewage, municipal waste, and agricultural waste to clean hydrogen, reduce global warming, and bring about environmental protection. The company’s technology is based on 17 years of research and has completed the project Cometha for the Paris Olympics, turning sewage sludge into clean energy.

• Valuation Cap: $50 million

• Minimum Investment: $100

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