VC vs. Non-VC Backed Valuations in Equity Crowdfunding

CHART OF THE WEEK 📈

By Teddy Lyons | Read

Many investors see venture capital backing as a signal that an investment opportunity is high quality and worth investing into. The idea here is that venture firms have done all the heavy due diligence and therefore the investment is de-risked. And as a result, investors are usually willing to pay higher valuations in companies with VC-backing. Today’s Chart of the Week explores whether this phenomenon is also seen in the world of equity crowdfunding.

• From 2021-2024 YTD, the median valuation of VC-backed companies was nearly 50% higher than non-VC backed companies.

• The average valuation for VC-backed companies was 41% higher than non-VC backed companies.

• We can see that VC-backed companies raising an equity crowdfunding round demand higher valuations than companies without such backing.

• While this analysis does not necessarily show absolute causation, we can certainly conclude that having VC backing is helpful in demanding higher valuations.

To learn more, including charts on the amount of capital raised by VC vs. non-VC backed firms, read the full article here.

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PITCH REVIEW 💸

By Léa Bouhelier-Gautreau \ Deal Report

Brief: EarthGrid develops advanced plasma tunnel-boring robots to create efficient underground tunnels, reducing construction time and costs. The company serves utility companies, municipalities, and private entities, focusing on infrastructure for renewable energy, high-speed internet, clean water, and more. EarthGrid's technology aims to revolutionize tunnel boring, supporting the transition to clean energy and modern utilities.

Key People: CEO and Founder Troy Helming, with over 33 years in the clean energy industry, has a successful track record of founding and exiting companies, including two unicorns. COO and Co-Founder Scott Lane brings 32 years of experience in renewable energy and telecommunications, managing large-scale projects at companies like Centauri Energy and EDF Renewable Energy. CTO Jeff Dzado has contributed to significant projects at Amazon and Tesla.

Summary

Here's what we like: Earth Grid's new tunnel boring plasma technology is entering a market in need of its technology: the U.S. renewable energy market, estimated at $121.7 billion with an annual growth rate of 15.7%. Today, clean energy farms must wait 3 years or more to access transmission infrastructure development due to the incapacity of the utility to answer the exponentially growing demand. Earth Grid can accelerate the development of new energy projects in a 100x faster, 10x cheaper, and environmentally friendly alternative. The company has already signed contracts worth millions of dollars, and its product-market fit shows that it has the potential to become a unicorn.

EarthGrid is ready to start working on its new contracts. The company already has 82 approved patents and 75 pending.  It has secured State Utility Certificates of Public Convenience and Necessity (CPCNs) in 45 states, covering 96% of the U.S. population and 97% of the GDP. These certifications are crucial for the company's ability to operate and expand its services nationwide. EarthGrid has raised $50 million, with funding rounds being significantly oversubscribed. The company successfully bored a 2 km tunnel last year and generated $391k from this project.

Here's what we don't: Several factors add risk to an investment in EarthGrid. First, the company only has a couple of months of runway. EarthGrid is seeking additional funding from institutional investors. Although it has already raised $50 million from VC funds such as Monozukuri Ventures and VU Venture Partners, as well as from angel groups and strategic investors, raising more capital could be challenging given its limited runway. Investors should note that the company's cash reserves are low.

Moreover, EarthGrid operates in a capital and time-intensive industry. To fulfill its numerous signed contracts, the company will need to borrow millions from banks to build dozens of torch machines, which can take up to a year and a half to construct. While these contracts may help secure the necessary loans, it will still take at least a year before EarthGrid begins operating on its larger contracts and generating significant revenue.

LAST WEEK’S POLL RESULTS

Would you Invest in Project Buffalo?

🟩🟩🟩🟩🟩🟩 👍 (25)

🟨🟨🟨🟨⬜️⬜️ 👎 (21)

46 Votes

🎙 INSIDE STARTUP INVESTING

By Sam Fiske \ Listen

In this episode, Adam Salmen, Managing Director at Novastone Capital Advisors, joins Chris. Adam discusses the intricacies of their search fund model, a high-performing private equity strategy rooted in acquiring stable, cash-flowing businesses. He elaborates on their methodical approach to identifying a target company named Project Buffalo, leveraging debt financing, and institutionalizing operations to enhance growth and profitability. The conversation also dives into the broader implications and opportunities within the steel industry, highlighting the growth potential through strategic acquisitions and operational efficiencies.

STAFF PICKS 🌶️

AJNA BioSciences

AJNA BioSciences is dedicated to advancing plant-based pharmaceuticals, focusing on FDA-approved botanical drugs for Autism Spectrum Disorder (ASD) and Generalized Anxiety Disorder (GAD). Led by scientists from Johns Hopkins, NYU, and Harvard Medical, AJNA BioSciences is currently progressing with two botanical drugs in clinical trials. By utilizing plant medicine, AJNA BioSciences provides safer, more effective treatment options, addressing the significant side effects of traditional pharmaceuticals.

• Pre-Money Valuation: $31.5 million

• Minimum Investment: $250

Smart Cups

Smart Cups utilizes novel microencapsulation printing to eliminate liquid from goods, facilitating liquidless transportation and reducing carbon emissions, packaging, and global warming. The company's innovative technology has garnered attention from FOX, ABC 7, Time Magazine, and Forbes.

• Pre-Money Valuation: $59 million

• Minimum Investment: $248

Thinkster Learning

Thinkster Learning aims to make education faster and easier by adapting to each student’s goals and needs, catering to both consumers and schools. The platform attracts over 4 million monthly visitors from more than 30 countries, generating $21 million in lifetime revenues.

• Pre-Money Valuation: $35 million

• Minimum Investment: $250