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Mr. Wonderful: more consolidation is coming

Updated: Nov 9, 2022

  • StartEngine’s recent acquisition of SeedInvest sent shockwaves through the equity crowdfunding community

  • We’re talking high single digits on the Richter scale. Coffee mugs tremoring in San Francisco cafes level of shockwaves.

This past Thursday, StartEngine CEO Howard Marks was joined by Kevin O’Leary to discuss the deal during a webinar

Did you just yawn after reading the word ‘webinar’? Well you’re in luck, I watched it all so that you don’t have to! Here are the biggest takeaways:

The deal is all about scale.

  • Kevin O’Leary believes that scale is one of the most important factors for companies in the financial services industry

  • This is because financial services can have a multitude of fixed costs, or expenses that don’t increase along with an increase in sales (ie, a company’s office lease)

  • In order to reach profitability, you’ll need enough scale to offset your expenses. Here’s a visual to help demonstrate how this plays out for a company - revenue scales to the point of profitability

SeedInvest counted 700,000 members in its ranks, which will be a large boost to StartEngine’s ~1 million. They’ll also get access to SeedInvest’s pipeline of startups, which includes the likes of NowRX ($25M+ raised)

Consolidation is not over

  • O’Leary also believes that this is the start of consolidation, not the ending

  • StartEngine financed the deal solely by exchanging its stock, so the company still has plenty of cash on hand if it decides to make another acquisition

  • Both Wefunder and StartEngine are fresh off of raising multi-million dollar rounds for their operations, so it will be interesting to see if that cash will be deployed to scoop up additional companies

Earlier in the week, Howard Marks dropped this badass line:

“I think consolidation is inevitable, and we intend on being the consolidator”

Say Goodbye to Reg D

  • SeedInvest included Reg D deals on its platform - these are deals that are reserved for accredited investors

  • StartEngine does not currently offer Reg D deals and Marks has no intention of introducing them to the platform

‘Having deals on our site that the majority of members cannot invest in does not align with our mission’ - Marks

Euro Trip? Don’t even think about it

Marks affirmed that StartEngine is not considering an expansion to Europe. His logic for keeping things state side runs like this:

  • The US market is so massive that we are not even close to saturating it

  • Trying to establish a foothold in Europe where established players already play would not only be a distraction, but a drain on resources

Marks + O’Leary joked that when StartEngine reaches a $5B valuation (up from $1.3B now), they would finally take a look at a European expansion

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