How Equity Crowdfunders Get Paid

Whether we’re investing in startups or stocks, the goal is always the same…

We invest to make money.

The more… the better.

With stocks, getting paid is simple. Buy low and sell high.

Or you can cash your dividend check.

With bonds, it’s no different. We can hold ’em and collect the payments. Or, again, we can buy low and sell high.

But what about the world of equity crowdfunding… or Venture Private Offerings (VPOs), as I’m fond of calling them?

How do we take profits? And when?

A few weeks ago, we talked to the founder of a VPO. I had recently recommended his business to subscribers of my Venture Fortunes research service. He said the ideal profit-taking opportunity would be an acquisition in two or three years.

It could put huge profits in the hands of folks who followed my advice.

Last week, we talked with the founder of Tula Mics, a maker of popular microphones. His take was a bit different. “We’ll build a good company,” he said, “and the profit opportunities will follow.”

What does that mean?

More to the point… how do investors get paid?

There are a few ways to get the job done.

Cashing In

We’ll start with some recent real-world examples from the popular platform StartEngine.

Solectrac is a maker of electric tractors. I’ve personally explored the company and have dived into its offerings. It’s an interesting company with a unique niche.

In the fall of 2020, it raised just shy of a million bucks on StartEngine.

At the time of the offering, it had two models in development: a 70-horsepower-equivalent model for general farm work and a 40-horsepower-equivalent model for row crop work.

The company was going to use the money it raised to market its products and further their development.

But the offering did more than just raise funds. It attracted a suitor.

Just six months after Solectrac closed its funding round on StartEngine, an investor stepped in to buy 100% of the company. And it did so at a valuation that was about 67% higher than the StartEngine funding round implied.

Early investors got a 68% return on their money.

This was an extremely quick payback, and it represents the power of getting in with the right management team and the right product.

Solectrac won’t be the next Amazon or Facebook. But you don’t have to find a unicorn to get big wins.

There are plenty of small deals like this out there.

Public Profits

It’s not always a buyout that puts a big check in the hands of VPO investors. Often, a company will get so big that it turns to the stock market for its funding.

That’s a move that can hand early investors a massive payday.

Take Elio Motors, for example. It develops very distinctive-looking (I’m being nice) electric cars. But with price tags of just a few thousand bucks, their looks don’t matter all that much.

The company raised about $17 million via StartEngine in 2015. Early buyers got shares for $12 each.

This was one of the first “Regulation A+” deals ever approved by the SEC.

StartEngine CEO Ron Miller said it “may be the biggest financial breakthrough of this generation.”

Less than six months later, the company filed for an IPO. Within weeks of going public, shares were trading for more than $50.

It was a 300%-plus win for investors in just a few months.

Easy money.

Income Startups

But just like with stocks and bonds… buying low and selling high isn’t the only way to profit from startups.

Few folks know it, but it is possible to collect income from these deals. Tula Mic founder and CEO David Brown hinted at that in our interview with him last week.

Take TerraCycle, for instance.

It’s a recycling company that, oddly, recycles “unrecyclables” – things like car seats and other oddball plastics.

It raised just over $6 million on StartEngine at $100 per share.

Last year, it paid out its first dividend to early investors. They got a yield of about 4.5%.

The payout comes thanks to $25 million in sales in 2020 and a bottom line of $4 million.

With commodity prices on the rise, it’s not hard to believe those numbers – and the dividend payouts – will be increasing handily this year.

It proves that investing in startups isn’t all that different from buying the big, behemoth firms that lumber their way into the public markets.

But often, the gains come quicker… and are far bigger. And, yes, the income stream can be larger too.

There’s a lot to be excited about in the world of VPOs… especially once you know all the ways you can get paid.

Keep an eye on this weekly series to give yourself the best shot at a big win.