What are the most popular security types in investment crowdfunding?

CHART OF THE WEEK 📈

By Léa Bouhelier-Gautreau | Read

Choosing the right security type affects investors’ returns. To understand which are most common in equity crowdfunding (ECF) since 2023, we analyzed Reg CF and Reg A+ deals.

• Common equity, the same securities offered on public markets, are the most frequent - but exercising voting rights through ECF deals is nearly impossible, limiting investor control. While investing in common equity, the key focus should be on company valuation, not share price.

• Preferred stock gives better terms when it offers liquidation preference. This ensures preferred shareholders get their initial investment back first, ahead of common shareholders, in the event of liquidation or sale. Common stockholders only receive payouts after all debts and preferred claims are settled. However, some companies note in Form C that these shares may act like common stock, so careful due diligence is crucial.

• Platforms like StartEngine and Dealmaker Securities mainly feature companies offering common or preferred stock.

• SAFEs (Simple Agreements for Future Equity) are popular with early-stage companies. They allow companies to raise funds without issuing stock or setting a formal valuation. Instead, a SAFE offers a valuation cap (setting the highest price at which the SAFE will convert to stock) and/or a discount (ensuring early investors get better terms than future investors). SAFEs delay stock issuance and, therefore, dilution, which can enhance returns, but uncapped SAFEs are riskier as investors don’t know the future valuation, which could reduce their share of the company.

• Convertible Notes also promise future equity and may offer interest in the form of extra shares until conversion, but they are usually reported as debt. Crowd Notes, a derivative of Convertible Notes, are regularly offered online.

• Equity token securities use blockchain to offer digital shares with liquidity benefits while maintaining traditional ownership rights - like Hydro Wind Energy did in its latest raise.

• Ultimately, while security types do influence outcomes, the real key to maximizing returns is picking companies with solid growth potential, smart leadership, and a fair valuation. Focus on the company’s fundamentals—choose wisely, and the type of security becomes a strategic tool rather than the deciding factor for success.

INVESTMENT ROUNDTABLE

By Sam Fiske / Watch

In this week’s Kingcrowd Investment Roundtable, the team explores trends in transportation startup investments, with electric vehicles (EVs) leading the pack, followed by planes and eVTOLs. They also discuss Elemeno Health’s pivot and down round, highlighting the company’s potential for future growth. Lastly, they dive into the critical differences between common and preferred equity, emphasizing the impact on investors’ returns.

WEBINARS

Unlock the power of self-directed IRAs! Join us for an exclusive webinar on Tuesday, November 19th, with Mat Sorensen, CEO of Directed IRA, to discover how you can invest in alternative assets like real estate, startups, and more through your IRA. Learn about the benefits, current trends, and actionable steps to diversify your retirement portfolio. Register now with the button below 👇

PITCH REVIEW 💸

By Teddy Lyons \ Deal Report

Brief: Medical supplies are one of the largest expenses for hospitals, with millions being spent per year to keep critical instruments and materials in stock for surgeries and medical procedures. However, shortages continually plague the industry, often requiring hospitals to pay up to 10X prices for critical supplies in urgent need. If hospitals can’t get hands on these materials, surgeries are often delayed and can cause both negative patient outcomes and missed revenue for the hospital. Assured Med Supply has developed an AI-copilot assistant to streamline the process of purchasing medical equipment for hospitals and clinics, easily allowing them to compare prices across multiple different supplier sources and ultimately pay a fair price. The company used to be a pure-play supplier of medical supply equipment and has now pivoted into developing its AI solution to address the inefficiencies plaguing the supply procurement process for hospitals and clinics.

Key People: Assured Med Supply is led by Roy Malkin (Co-Founder / CEO) who previously led RedSwan, a commercial real estate tokenization platform. He also runs Venture Aviator, a consulting firm that has built three tech companies that became unicorns. He holds an MBA from UCLA and also worked at Open Media Group, The Walt Disney Company, Liberty Media, and Credit Suisse 

Roy is joined by Gary Lipsky (Co-Founder / COO) who also served as Head of Product at Galactica Labs. He previously worked as VP of Product Development and FoxIO, and also previously founded Venture Spark, PINE.EARTH, JA1inc (acquired by FoxIO), Innovizo, and Clean Power Ventures. 

Finally, Dan Oparah is a Co-Founder and Advisor at Assured Med Supply. He is currently the CTO of RedSwan, a company he founded with Roy, and is also a UCLA MBA holder. He previously owned Blockvolution and Venture Aviator.

Summary

Here's what we like: Up until this year, Assured Med Supply was a supplier of medical equipment to major hospitals and clinics across the United States. The company grew this business to over $5M+ in revenue and cultivated deep relationships and partnerships with nationwide hospitals and clinics. As a result, the company is now already an approved supplier at these institutions, a process that usually takes up to a year or more to get approved. This will allow for Assured Med Supply to quickly leverage existing relationships to get its AI-assistant into the hands of customers. Additionally, since the company has already played in the medical supply space, Assured Med Supply already has full access and relationships to suppliers that will get quickly integrated onto the platform.

Here's what we don't: Going through a dramatic business pivot like this always carries substantial risk. Since Assured Med Supply’s product is not in the hands of customers yet, there is no way of knowing how the rollout/feedback will be from hospitals. While the solution is serving an obvious need, developing and iterating on an AI-powered software product will always carry hiccups that will need to be addressed in real-time. Additionally, there is always the possibility that there are large competitors in the medical supply space that are building similar products that will compete with Assured Med Supply.

LAST WEEK’S POLL RESULTS

Would you invest in Timeplast?

🟩🟩🟩🟩🟩🟩 👍 (3)

🟩🟩🟩🟩🟩🟩 👎 (3)

6 Votes

Events

Mark Your Calendars for Kingscrowd’s Demo Day Q4 2024!

Don’t miss our next exciting Demo Day on October 30th at 1pm ET, sponsored by Fidelity Investments. Join us as top-rated companies like Our Bond and AptDeco unveil their latest innovations and pitch their groundbreaking ideas. This is your opportunity to discover emerging leaders and potentially transformative investment opportunities in diverse sectors. Stay tuned for our quarterly event of dynamic presentations and insightful discussions!

STAFF PICKS 🌶️

Bonbuz

Bonbuz is a non-alcoholic beverage brand that creates drinks using novel ingredients to provide a natural buzz without the toxins or hangovers associated with alcohol. The product lineup includes energizing alcohol-free spirits, calming aperitivos, and sparkling tonics designed to promote well-being.

• Valuation Cap: $6.2 million

• Minimum Investment: $100

Digbi Health

Digbi Health is a medical care provider focused on addressing obesity, cardiometabolic, and gut health challenges through precision medicine, AI, and human care teams. With 35 million users across seven health plans and multiple employers, the company reported six times revenue growth and $23 million in contracted revenue in 2024.

• Pre-Money Valuation: $60.8 million

• Minimum Investment: $200

Upside

Upside is a fantasy sports and betting platform where users, known as "players," can earn equity through gameplay, referrals, and advisory roles. The platform offers daily fantasy sports, bracketology, and a sportsbook, all accessible via a mobile app. Unlike traditional betting platforms, where the "House" keeps all profits, Upside’s player-ownership model allows users to become shareholders, offering long-term benefits beyond just participating. This approach aims to engage sports enthusiasts by giving them a stake in the platform, turning their participation into a potential financial asset.

• Valuation Cap: $44.9 million

• Minimum Investment: $300

Enjoyed this newsletter? Forward it to an investing-minded friend and have them signup here.