Full Disclosure: We are long since 11/17/2019.
This is NOT investment advice.
StartEngine sent out an interesting update this week. We'll get to that in a bit. Earlier in the year we sent an email to the firm. Who knows if it got to the CEO. It was very complimentary overall. It also contained our plan for market dominance, and we mean dominance.
We're bullish on EQUITY CF, not debt CF. We see slicing and dicing loans as clunky and problematic relative to the customer's expectation. They are expecting steady returns. If 100 investors are in on a loan, then a missed payment becomes a major headache. Equity CF investors by and large know they are swinging for the fences and holding lower positions on the stack.
We like the equity CF space and see maybe 1-2 platforms really flourishing. The reason why we feel this is because of what a top tier platform will be able to tell a founder and more importantly deliver for a founder. The core competency is (or should be, no?) the value prop of being able to raise money for a founder. No founder - no product - no inventory - no customers - no sales.
With that in mind, that brings us to our plan. Our email, referenced above, contained some language on how we propose StartEngine attacks this space. A+ and the secondary are huge yes, and we will discuss those more over time. Here's what the email said:
- the key is the Owner's Bonus which should be the primary weapon resourced and emphasized in the short to intermediate run
- give the Owner's Bonus members more, and charge them more (credibly and ethically over time)
- reward loyalty to the Owner's Bonus and provide supreme benefits to those that are SE shareholders and Owner's Bonus members
- our email contained a potential message to a client Founder that states "hey, if your business/idea is a real eye opener, your 1.07M ask was over before it even started"
Here's how it works and why it matters. StartEngine needs to focus like a laser on the Owner's Bonus members, set a goal of 1M by 2026 let's say. First of all - that is $299M in recurring revenue per year! Too low, we say raise the price to $349/year by then and then it is a run rate of $349M/year roughly with the real time numbers of course oscillating.
This is potentially very powerful. Think about it. The most important thing is delivering the goods to the founder. The founder needs capital. The founder is better served by working on the business itself and having the raise manage itself to the extent possible.
With 1M (again, just a reference, will show the current numbers and momentum below), StartEngine can take down $1.07M CF with just a little over 2,000 Owner's Bonus members tossing in $500 a pop. That is a very, very reasonable expectation when something like TimePlast or AtomBeam or LiquidPiston comes along.
Here's the real fulcrum, the point of max pain and maximum opportunity. StartEngine could conceivably look a potential client in the eye and basically say the following: "Hey, we ran this through an internal 'test the waters' with our core investor base, and we are very confident we can get you $1.07M upon release and even work to that $5M number if desired". Game over.
Additionally - what will happen over time is that the top founders with the most intriguing businesses and ideas will stampede towards StartEngine! Why waste time begging and chasing VCs and individual angels if you can essentially "set it and forget it" and get through a CF raise knowing the capital will be there. They can also throw the raise up for months and use that time to build the brand, ecosystem, and army of supporters.
So, how stupid and dumb is this idea? Any chance it would work?
The below graph (now we go to that email update from SE referenced earlier) shows the purchases of Owner's Bonus subscriptions which reflects both new and renewals. As depicted, the numbers YTD for 2023 show very strong implied growth YOY and this is with real earnings still declining and a very troubled and challenging risk on investing environment. Could end 2023 with 30K members - not too shabby.
So what? Do these people make purchases of equity? Shown below, it's clear more Owner's Bonus members leads to more sales and revenue for StartEngine.
StartEngine, via the Owner's Bonus, has a chance to build a TEAM that self reinforces itself via equity ownership of the platform itself and feasting on the very best Reg CF offerings. If done correctly, the founders will line up around the block as "raising a round" becomes a lot less time consuming and gruesome.
But wait - there's a problem. With 1M members (again, a goal and achievable one at that) there "won't be enough" and "that's not fair" will become mantras of critics. No problem - blow past the 1.07M and get that full 5M quickly and then show the DC parasites why the amounts need to be raised further. And this is where loyalty comes in. The longer one has been an Owner's Bonus member, the closer to the front of the line they get when offered sneak previews of 'test the water' raises. Like we said, it was over before it even started.
A+ and the Secondary Market??? Show us a better way to grow those than what is outlined here to build the proper foundation.
"Victorious warriors win first, and then go to war" - Sun Tzu
