SeedInvest Review: Invest In Startups

Private equity investments have historically been restricted to accredited investors, which ruled out most of us. Also, you had to somehow know about these deals, which meant a high-quality network of connections.

But SeedInvest is an investing platform that's bringing private equity to the masses. It allows non-accredited investors to get in on the early stage of startup fundraising with investments as low as $200.

SeedInvest also provides all the information an investor needs to know about each company, which greatly reduces the amount of time needed for research. In this article, we’ll go over what the platform offers in detail and break down its pros and cons.

Who Is SeedInvest?

What Do They Offer?

SeedInvest offers regular investors the opportunity to participate in the private equity market. Private equity is made up of companies in the early stages of raising capital and not yet listed on public exchanges. In fact, some will never be listed publicly. Many of these companies are startups.

Private equity funds have traditionally only been available to accredited investors who were in the know. Accredited investors have a net worth of $1 million, excluding their residence, or an income for the last two years of at least $200,000. But many of the investments available on SeedInvest are open to both accredited and non-accredited investors.

SeedInvest also offers lower investment minimums than many similar platforms. Each company is free to set its own minimum. These can be as low as $500, but SeedInvest says that most range from $1,000 to $10,000. However, users who sign up for Auto Invest can invest as little as $200 per investment even if the companies have set higher minimums.

Regulation Types

SeedInvest has three different types of fundraising options for founders: 

Funding Investments

There are three ways to fund an investment with SeedInvest:

• Debit card (for investments that are $2,500 or less) 
• Wire transfer
• US checking account

The payment method should match the investor type. For example, if you signed up as an individual, your payment method should be from your personal account and not a corporate account. If you signed up as a business, the payment method must match the business name.

If the payment method name is different from the SeedInvest account, it will be rejected. Credit cards are not accepted since they can be viewed as trading on margin. Also, be aware of your bank’s wire fee if you are funding by wire.

For checking account payments, a penny test must be performed. SeedInvest will deposit a small amount into your checking account for verification. For debit cards, a $0.25 charge is applied. Once verified, the amounts are returned.

It can take some time for your investment to show up. Funds must go through escrow and then be verified before the investment is formally closed. Verification times range from 2-4 weeks depending on the investment "Reg" type.

Auto Invest

Are There Any Fees?

Yes, a 2% processing fee (up to a maximum of $300) is charged per investment. The fee will be returned, however, if the company doesn’t hit its fundraising goal.

How Do I Open An Account?

You can visit the SeedInvest website to open an account. The account opening process with SeedInvest is longer than with other types of investment accounts as it's heavily regulated. 

You’ll need to upload additional documents to verify your identity and citizenship status. Accounts can be set up as an individual, corporation, or trust. The application approval process can take 1-2 days, as manual reviewing is required.

Is My Money Safe?

Investing in startups can be extremely risky. There is no guarantee that your original investment will ever be returned, nor are the companies you invest in required to make such guarantees. And funds invested on the SeedInvest platform are not FDIC or SIPC insured. You are usually investing in a convertible note offered by the company. 

Private equity investments also tend to be very illiquid. There is no public marketplace (like a stock exchange) for selling your shares. SeedInvest says all that investors should expect to hold their investments for 5+ years.

You may not receive any income during the holding period (most investments don't pay out any income) or even at the end of the investment period. In fact, you can end up losing all of your investment. Even if the company is successful, you could see your position diluted by future funding rounds.

SeedInvest does, however, perform rigorous due diligence on each potential startup to help reduce these risks. Only 1% of companies are accepted into the SeedInvest program.

Is It Worth It?

For those that have an appetite for risk and want to dip their toes into private equity investing, SeedInvest provides that opportunity. And, unlike many other private equity platforms, it's open to both accredited and non-accredited investors.

However, if you have a low risk tolerance or don't want to lock up your investment for 5 or more years, you may want to stick with publicly-traded stocks and funds. Check out our favorite stock brokers for building a diversified portfolio.

SeedInvest Features