A Review of Netcapital and a Look at [REDACTED]
On June 6, 2021, we published a factual article titled A Review of Netcapital and a Look at [REDACTED] in which we expressed our concerns about the Netcapital equity crowdfunding platform and a company it hosts, [REDACTED]. As risk averse investors, we do not believe equity crowdfunding benefits investors on any platform. Here are some pieces we’ve written regarding why we do not believe crowdfunding is good for investors:
- The Problem with Equity Crowdfunding Platforms
- A Warning About Crowdfunding
- Why Regulation A+ IPOs Should Be Avoided
And here are several equity crowdfunding platforms we’ve covered:
- EquityNet – An Equity Crowdfunding Platform Review
- MicroVentures – Is Equity Crowdfunding Worth A Look?
On August 26, 2021, we received a cease and desist letter from law firm [REDACTED] signed by an Associate at the firm named [REDACTED]. The letter threatens us with legal action if we don’t remove the aforementioned article. So, we did.
We have published nearly 2,000 articles using our same risk-averse critical analytical approach. We’re now being asked to take down one of them or face legal action. We’ve done so because that’s the easiest way forward, not because anything we said was inaccurate. We have a fiduciary responsibility to focus our resources on where we can add the most value to our readers.
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Great post! Only thing I’d add is that NetCapital makes money on both ends: once from the convenience fee, then taking a cut of funds raised. Note that ~50% of all money raised is spent on advertising *to investors.*
If you’re the canonical “little guy,” half your dollar goes to recruiting others to invest after you (at a steeper “valuation”!), 10% goes to Netcapital, leaving only 40% to go towards product development etc. Not a great deal!
Cheers for the feedback Carla B!
{Start rant} We write these pieces because we cannot fathom how the SEC lets stuff like this fly. Sure, people should take more accountability for their own financial fortunes, but many people don’t have a clue. Especially the elderly. Every time you turn around, someone’s bemoaning how “disadvantage category X” is being mistreated and we all hang our heads in shame (well, not us) and promise to “do better.” What about starting with problems that affect the people who made today’s fruitful societies a reality – the elder generation? We see “the little guy” fleeced on a regular basis. Where’s the outrage? {End rant}
Thank you for the open and honest estimation. I’ll be honest, they piqued my curiosity – I am a sucker for this kind of “future tech” investment… and my investments actually have worked out a couple times… but mostly they haven’t. And I’ll be honest, I don’t know where to look to figure out whether a company is worth investing in, so I rely on articles like this to give me the straight dope. All the other articles about this company are pie-in-the-sky, “everyone is about to make a ton of money!” Nonsense, which made my alarm bells go off. Once bitten… twice bitten… thrice kinda shy??? Lol
You’re quite welcome.
If you follow a simple rule and ignore anything that’s not traded on a major exchange, you’ll avoid a large majority of pitfalls such as this one. When you talk about “your alarm bells going off,” that’s exactly what you need to pay close attention to. Thank you for the comment.
Thank you for your article .You save my money
We’re very glad to hear that! We’ll add you to the long list of readers who have said that over the years.
Well… you just end up making your own promotion in this post. So yeah, criticizing someones crowdfunding when you’re directing at the same time to some other. No trust on both
We’re not promoting anything in the article. There’s an ad at the end which highlights our Nanalyze Premium offering. Notice how there’s no ads on our site except our own? That’s because bullshit companies were advertising garbage to our readers, like “become an angel investor.” Crowdfunding should be avoided at all costs. Period. We’re not a crowdfunding site, we’re a research site, with a very large audience of readers – both paid and non-paid. We’re read by a large number of institutional investors because we publish competent, insightful research. Don’t just come by here and take a pot shot at us without digging in to learn more about who we are.
Good call Stan. You’re smarter than that man. Stop paying so much attention to great stories and start being more critical of what companies are promising. Traction is underrated. Never get involved in equity crowdfunding.
Good point on the constantly moving “deadline.” The whole thing stinks to high heavens. And why do they keep increasing the value of the firm between “rounds?” It’s as if to suggest that these shares people are buying are increasing in value when they’re worth absolutely nothing unless they’re traded on a public market. The SEC should be policing stuff like this and they’re not. It’s a crying shame.
Anytime a company says they’re trying to democratize something for investors they’re usually trying to jack you. Last time we checked there were over 3,600 AI startups out there, at least a dozen publicly traded AI stocks, and countless companies using AI to do things more efficiently. This one doesn’t past the sniff test in any way shape or form. When that happens you just move on.
If an investment is a scam or simply fails due to incompetent management, the end result is still the same for the investor. That said, this thing is waving more red flags than a Chinese military parade.
You certainly do need to prepare your money because that’s likely what will happen. If something seems “a bit dodgy” then you walk away, you don’t “invest” in it.
They all have great stories. Does it really matter if the management team can’t make things happen or if it was a scam? The outcome is the same either way.
As we said numerous times, do not get involved in this rubbish. Go use a real platform that lets you invest alongside VCs like Alumni Group: https://nanalyze.com/2020/07/how-to-invest-in-startups/
Making an investment and then not expecting much from it isn’t our forte 😉 We’re quite risk averse so we don’t dabble at all in anything that doesn’t have a market. That’s perhaps the biggest problem here. Shares are only worth what someone is able and willing to pay for them. In the equity crowdfunding world, your shares are worthless unless there’s an exit. With nine out of ten startups – genuine propositions vetted by VCs – failing to exit, the odds are not looking good. Thank you for the comment Ben!
The word scam wasn’t used in the article for good reason. As we’ve said before, and it bears repeating…
If an investment is a scam, or simply fails due to incompetent management, the end result is still the same for the investor. Good luck figuring out which is which. That’s why we stay as far away from this stuff as possible.
Thank you for the comment. We’ve all learned the hard way Larry, and it’s a very valuable lesson.
Interesting information. I have read this article and the one about “The Problem with Equity Crowdfunding Platforms”. Since I’m neither US citizen nor resident and have made two angel investments through Equity crowdfunding platforms. This is my analysis about Equity crowdfunding in general and I would like your opinion about it.
1- There have been several successful exits but not on US platforms, UK platforms have several success stories. Take a look at Crowdcube which is a UK based equity crowdfunding platform. See section “Investors Exits” in the link below
https://www.crowdcube.com/explore/investing/investor-returns
also see the second link
https://www.crowdfundinsider.com/2021/06/176807-nutmeg-delivers-returns-to-crowdfunding-investors-industry-needs-more-news-like-this/
2- I believe startups that go to equity crowdfunding platforms can make it to VC money if they chose to go to an equity crowdfunding platform that operate as an SPV. UK based Crowdcube and Seeders operate as such, they just call it nominee shareholder which hold the shares on behalf of all investors who invested through their platforms. This good because VC always try to avoid startups with a lot of investors, so an SPV should circumvent this issue.
3- A major problem I believe with equity crowdfunding is the due diligence. I’m talking about the US platforms here. I have spotted two startups on StartEngine that look sketchy. Some platforms do not conduct rigorous due diligence a loophole that founders have exploited in the past and still do.
In the end, Equity crowdfunding isn’t that bad, just need more strict regulations and retail investors must know how to conduct due diligence to the best of their knowledge.
Hi Mohammad,
We very much appreciate your well thought out questions around equity crowdfunding. Here are a few comments.
First, one out of ten VC vetted startups end up reaching an exit (the point at which crowdfunding shares actually have value). That means you need to invest in at least ten startups to have one winner. You said you invested in two, so the odds are not in your favor. For crowdfunding to properly work, you’d need to adopt a spray-and-pray approach. Unless of course you think you’re better at picking winners than VCs are, then just go become a VC.
You are absolutely right that a major problem is the lack of due diligence. If you want to invest in startups, do it alongside proper VCs. We talked about this in our piece on Alumni Ventures Group (https://nanalyze.com/2020/07/how-to-invest-in-startups/). You said, “in the end equity crowdfunding isn’t that bad, it just needs more strict regulations.” Well, until it has more regulation around due diligence, it is bad. As they say, buyer beware. A retail investor – no matter how clever they think they are – is absolutely no match for someone who is experienced in how to fleece the system. That’s why we let VCs do what they do best and invest alongside them – ideally.
Thank you for your thought provoking comments.