Breaking:

Our Deal Flow is About to Explode

You’ve heard me say it time and time again: Things move fast around here. Since we first launched just one year ago, we’ve seen and done it all, from launching three deals in one day to featuring a raise that filled in under 10 hours.

But there’s another big change coming soon… and it’s going to completely revolutionize equity crowdfunding in ways we’ve never seen before.

I’m talking about major regulatory changes that were just proposed by the SEC – and that could take effect as soon as this September. These changes could have an immense impact on the private equity world – not just for startup founders and CEOs but for angel investors too.

Let’s explore some of the ones that are most important for us.

The Amount You’re Allowed to Invest Each Year Could Go Up

Right now, nonaccredited investors are limited in the amount they can invest each year by the SEC. That amount is based on either their net worth or income (whichever is lesser). The proposed changes would flip the script – basing annual limits on the greater of the two.

This could make a world of difference for those with disparate numbers. Think about it – someone with $750,000 in the bank but a $100,000 salary can only invest $10K per year right now (10% of the lesser of the two).

The proposed changes would allow them to base their limits on the higher of those two numbers, leaving them with $75K to invest each year.

Meanwhile, accredited investors will see their annual limits waived entirely. That means more freedom to handle your assets exactly the way you think is best.

Startups Raising via Reg. CF Could “Test the Waters” First

Currently, startups that are planning a crowdfunding raise are under strict legal obligations to keep quiet. Not only are they barred from advertising an upcoming raise online or elsewhere… they’re technically not allowed to say a word to anyone, including their friends and families.

Other types of raises (including Reg. A+) allow companies to “test the waters,” meaning that they can engage in communications to feel out investor interest before they take the plunge. This process removes a layer of risk; if testing the waters shows low investor interest, that startup can save a lot of time, money, and resources that would have been wasted on an ill-timed raise.

Early-stage companies already face enough risk without having to worry about whether or not they’re wasting cash marketing a raise that won’t work out. In fact, that’s one of the main complaints I hear from founders and CEOs who actively avoid trying out Reg. CF.

Without that risk, I expect to see a substantial uptick in the number and quality of startups that decide to give crowdfunding a shot. And that means more deal flow for us. Which brings me to the next – and biggest – change…

Raise Maximums Could Increase by Millions of Dollars

You’ve probably noticed that the majority of crowdfunding deals have the same upper limit: $1.07 million. That’s because $1.07 million is the maximum amount any startup can raise via Reg. CF in a year, per the SEC.

Sometimes, $1.07 million is plenty. There are lean companies out there that can operate for well over a year on that kind of cash. But most of the time, $1 million is just scratching the surface of what a startup needs.

If the proposed changes are implemented, that cap will jump to $5 million per year – which means that bigger, more mature startups could flock to crowdfunding instead of running private raises behind closed doors.

Making Reg. CF more attractive to startups is going to be the absolute best way to continue bringing world-class deal flow to our Network… not to mention that more investors will be able to participate in each raise. Like I said, we once saw a crowdfunding raise fill in less than 10 hours!

And while we don’t have an exact timeline for when these changes will take place, we do know that the SEC typically rolls out regulatory updates in September, following a 60-day comment period. That means we could be seeing more and better deal opportunities in just a few short months.

We’ll be the first to let you know exactly how to take advantage once these changes take effect. Until then, stay tuned – we have plenty of exciting updates on the way.

The Private Equity Landscape

DraftKings (Nasdaq:DKNG), a fantasy sports and sports betting provider, debuted on the Nasdaq exchange on April 24, receiving a market value of more than $6 billion. Following a December 2019 merger with blank-check company Diamond Eagle Acquisition Corp., the Boston-based company is the only publicly traded company of its kind.

Palantir Technologies, the big data analytics company co-founded by Peter Thiel, will reportedly file initial public offering paperwork within the next few weeks. Palantir recently raised $500 million from Japanese insurance holdings company Sompo Holdings, bringing the company’s total funding to about $2.5 billion.

Microsoft (Nasdaq:MSFT) announced plans to acquire CyberX, an Israeli cybersecurity startup, on June 22. The acquisition will bolster Microsoft’s current efforts to manage systems within the Internet of Things, or IOT, adding additional technology to monitor and prevent industry-level security vulnerabilities.

Snowflake, a cloud data platform backed by Salesforce (NYSE:CRM), has reportedly filed initial public offering paperwork with the Securities and Exchange Commission. Snowflake raised $479 million in a February raise, with a total valuation of $12.4 billion.

WeWork, the company providing shared workspaces for startups, faces a lawsuit from investors claiming executives exaggerated WeWork’s business plans and minimized losses in order to sell stock. The complaint, filed in San Francisco’s federal court, also named Japanese conglomerate holding company Softbank as a defendant.

Curaleaf (CURLF), the leading medical cannabis operator in the U.S., has signed an amended agreement to acquire GR Companies Inc. (Grassroots), the country’s largest private vertically integrated multistate operator. The deal, valued at approximately $875 million, will secure Curaleaf as the world’s largest cannabis company in terms of revenue.

Fusion Pharmaceuticals, an Ontario-based biotech company developing treatments for solid tumor cancers, announced its IPO terms on June 22. The company, founded in 2014, plans to raise $125 million, offering 8.4 million shares priced at $14 to $16.

Albertsons Companies (ACI), the grocery giant with a previous Safeway merger, is expected to go public this week, with plans to raise $1.3 billion at a valuation of $19 billion. The corporation previously abandoned a 2015 IPO due to market conditions but has seen accelerated same-store sales growth during the COVID-19 pandemic.

Meet David Weisburd

Your Newest Angel Investing Advisor

Dear Reader,

David Weisburd here – serial entrepreneur, co-head of venture capital at 10X Capital, and the newest member of the Angels & Entrepreneurs advisory board.

Earlier this quarter, I introduced myself to everyone here on the Network, and I want to thank you all for the warm welcome. I’m so impressed with the community that you’ve built here, and I’m thrilled to be a part of it.

I’ve been an entrepreneur since my sophomore year of high school when I chose to work for myself rather than relying on others to tell me what to do. My first company, TicketCelebration.com, saw incredible success – growing into a multimillion-dollar business that eventually became StubHub’s largest inventory supplier.

I was a self-made millionaire by the time I was 21, at which point I decided to pack all of my stuff and head out west to Silicon Valley with a few of my friends. There, we started a brand-new marketing tech company called isocket.

Times were tough at the beginning… we were rejected by VC funds close to 100 times. But that changed quickly after securing capital from some of the world’s most prominent investors, like Peter Thiel, Tim Draper, Jeff Clavier, and David Blumberg.

We raised over $16 million for isocket, and it was eventually acquired for an eight-figure sum. I decided at that point that I needed an Ivy League MBA… so I packed up and headed out to business school at Dartmouth.

Not too long after, I founded RoomHunt.com, a site that completely revolutionized the roommate and rental experience. After expanding into 72 geographic markets around the world, Roomhunt was acquired by RentLingo… and that’s when I decided to move to the other side of the table.

With the help of my mentor, Errik Anderson (co-founder of Adimab, Compass Therapeutics, and Alloy Therapeutics), I joined the world of venture capital investing through my investment into Compass Therapeutics, Fidelity, Orbimed, and Google Ventures.

Since then, I’ve invested in almost 50 venture- backed companies, including some of the
world’s most renowned startups – think companies like 23andMe, DraftKings, Headspace, Palantir, and Wish – alongside the “who’s who” of venture capitalists.

Through this experience, I’ve learned exactly how to source and vet the best opportunities out there. I can’t wait to share those opportunities with you as your newest Advisory Board member.

Very best,

David Weisburd

Digging Deeper

Bright Futures for EdTech and Its Students

We’ve reached the end of a long – and unprecedented – school year for millions of students around the world. COVID-19 forced more than 1.4 billion students across the globe to bring their classrooms home… forcing dozens of edtech startups to scale their businesses at lightspeed to meet the sudden demand.

But even before this rapid change, edtech had been steadily gaining momentum for a while. Classroom technology that used to comprise simple multimedia content has expanded dramatically over the last five to 10 years to provide fuller learning experiences, more personalized and interactive services, and more effective outcomes.

And investors have hopped on the bandwagon too. HolonIQ reported that in 2018, global education VC investments reached $8.2 billion – more than eight times the investment amount recorded in 2014. The same report estimates that the global edtech market will hit $341 billion by 2025.

In the U.S., the 2019 edtech market raised a record $1.7 billion in funding, with four “megadeals” (deals exceeding $100 million) going to Guild Education, BetterUp, Coursera, and Andela, according to a report by EdSurge.

The U.S. is also home to the fourth most-funded edtech company in the world, 2U, which helps colleges and universities offer online degree programs.

Of course, things are a little more volatile in 2020. During a market downturn, it’s natural for investors to be wary of pushing capital into companies that may not make it through. And in a time where many companies are choosing to conserve cash rather than get pummeled on the trading floor, there may be fewer VC dollars floating around for the little guys.

Edtech is an industry that has seen promising growth, even this year. A TechCrunch survey of top investors indicated that VCs are now spending more time in the edtech sector than ever before, and EdSurge reports that some of the top VC firms have raised large education-focused funds within the last year.

And despite the inhospitable markets, there are still plenty of large-volume deals taking place. Let’s take Mathway, for example, a private company whose website acts as an online mathematical assistant. Mathway provides students with a wide range of math problems and tools to help increase their understanding functions. The company was acquired by Chegg (NYSE:CHGG) on June 4, 2020, for $115 million.

Technology will continue to play a role in education long after the COVID-19 crisis subsides, and its evolution will coincide with massive growth in dozens of industries. In fact, most believe that edtech is a complementary industry to sectors like cybersecurity and big data management – both of which will be essential to keeping emerging edtech secure as it continues to expand.

Cybersecurity, for example, will need to become a priority for educational institutions as they rely more heavily on online and software-based technology. Since 2016, there have been nearly 800 cyberattacks on K-12 institutions.

It’s reasonable to assume that security threats will only increase as edtech expands – which is exactly why cybersecurity tech will need to grow to keep up. Luckily, cybersecurity is a global industry that’s already growing rapidly, valued at $104 billion in 2017 and projected to hit $259 billion by 2025, according to Allied Market Research.

5G tech and big data will work alongside education to improve student outcomes and personalize curricula for students around the world. EdTech Magazine reports that 5G will provide data speeds 100 times faster than our current data systems – allowing for faster download speeds and seamless connection for even more devices at once.

In the edtech space, increased speeds will improve student and faculty experiences both remotely and in the classroom. 5G will support a blended classroom environment of in-person and innovative web-based approaches to learning that are already gaining popularity.

Alongside cybersecurity and data management, edtech’s growth will also complement multi-billion dollar industries like e-commerce and Software as a Service (SaaS), all of which will require new technology and experts trained to work within an increasingly digital economy.

Simply put, edtech is growing rapidly, spurring innovation in dozens of critical industries. If current market projections are any indication, we’ll be seeing a whole lot more innovation coming out of the edtech world – whether organically or accelerated by the post-COVID-19 landscape. That could mean big things for some of our portfolio companies, like Caribu, Digital Dream Labs, and Everydae – so we’ll be keeping an eye out for some major movement in this space very soon. +

Ask Neil

Q: How do you find out how your investment is doing?

When you invest in a startup, you own a piece of that company. As such, founding teams should provide you with frequent updates on the company’s progress… which should give you an indication on how your investment is doing. These updates usually come quarterly, but some startups only update once or twice a year. Remember that a good founding team is a communicative one… if you’re not hearing anything at all, that’s a problem.

Q: What is the benefit of investing in real estate?

To me, the best part about real estate investing is that it’s becoming much more accessible for everyone through crowdfunding platforms. Real estate investing, in general, has the potential for higher dividends than traditional stocks. And in the crowdfunding world, you’re not only getting a piece of the real estate pie at a way lower investment minimum, you’re also streamlining the (often confusing) administrative and management process into something way more manageable. It can be a win-win for everyday investors like you!

Pro Tip

How to Add Value as an Angel Investor

Deal flow is the lifeblood of any investor… and the best way to ensure that you retain good deal flow is to make sure that you provide “value-add.”

Here are three ways you can add value as an angel investor:

Make customer introductions. Ask the founder or CEO who the ideal target customer is and keep your eyes open to customers that fit this profile.

Help recruit team members. Growing companies always need new team members. Ask the founder or CEO where the gap in the organization is and what skill sets s/he is looking for in order to fill the role.

Make investor introductions. Every investor knows other people that may be interested in investing in promising portfolio companies. Making these introductions can make or break a company.

By David Weisburd

Deal Snapshots

KINGMAKERS OPS invests in recession-resistant businesses like HVAC, plumbing, roofing, and more. These businesses are predominantly run by aging owners who need help exiting in a financially meaningful way. Kingmakers trains the next generation of managers to take over and grow home services businesses. Minimum investment: $100

FANCY is an e-commerce platform that offers a curated collection of lifestyle products. Consumers use Fancy to discover crowdsourced, unique products that they can’t find elsewhere online. Using the built-in social network, consumers can follow one another to discover influencer-backed items. Minimum investment: $250

ELEMENO HEALTH is a software company improving the quality of care at health-care facilities across the country. Elemeno’s team-based platform is a “virtual coach,” delivering custom bite-sized training and communications to the fingertips of health-care workers. This drives practice and consistency at the front lines, reducing costs, increasing safety, and improving outcomes. Minimum investment: $100

RYCA INTERNATIONAL is the company behind the Encompass toothbrush. Designed with patented technology, the Encompass toothbrush will allow users to brush their whole mouth in under 30 seconds, reducing the possibility of user error inherent in conventional toothbrushes. Minimum investment: $250

FLEETING established a network of licensed CDL drivers to provide its shipping partners access to a vetted, on-demand workforce. Licensed drivers can create their own schedules and work with shipping partners at their convenience. Minimum investment: $100

YAHYN is providing a technology-based solution to help retailers and vineyards sell their inventory online. Yahyn connects buyers to a vast selection of wine previously unavailable online. Minimum investment: $133.10