Democratizing.Finance — Issue #2

Welcome back to another month of Democratizing.Finance! It has been a pretty wild month between the market downturn, crypto crash, VC markets going crazy, and how equity crowdfunding has been reacting to all of this.

Photo by Jeffrey Blum on Unsplash

Social Media

First off, if you like this and want to talk about Equity Crowdfunding, investing, startups, startengine, and more, check out these links and social media below to follow it all month long! I write several times a week, regularly post on YouTube, and have a few groups to discuss these things, so make sure to join!







Tip of the Month

Bull markets make you money, but bear markets make you rich: As the great Warren Buffet once said, be greedy when others are fearful and fearful when others are greedy. Right now, not only are a LOT of people fearful, but it’s likely to get worse. This could be a massive opportunity for anyone that is able to take advantage of this. There are a few ways to take advantage of this. First, even just investing in the overall market will likely yield strong returns in the long run. Being down 25% or more means there’s a lot more room for upside than a normal steady rise up. However, the same is true if you’re able to find a few companies that are likely to be winners and ride the rebound. Netflix is down 75% from it’s highs, and Facebook is down 57%. If they fully rebound, that’s a return of 3.8x and 2.3x your money. Here’s an article talking about the full idea and several strategies:

Bull Markets Make You Money, but Bear Markets Make You Rich | by Caleb Naysmith | ILLUMINATION | Jun, 2022 |
Human nature is a funny thing. During bull markets, it’s endless euphoria, good money, and some questionable lines of thinking. It could be Tesla sitting at 1000x earnings and all-time highs with…

State of the Market

There’s good news and there’s bad news. The bad news is the market is in the toilet. The Crypto market is basically experiencing it’s 2008 right now where lack of regulation and signficant over speculation has led to several massive, multi-billion dollar entities going completely bankrupt over night. As each large entity goes out of business, it takes a few more with it. Similarly, it has not only taken some of the broader market with it, but also the broader market is taking a beating. Sky high inflation is hurting margins, cutting peoples expendable income, and causing interest rates to rise causing general uncertainty. Interest rates rising means it’s more expensive to take on debt, which means companies won’t grow quite as fast, and don’t have as many options if things go south. So, less options, worse margins, and less expendable income means stocks are doing worse, valuations pull back, and people aren’t able to put as much money into the stock market. As interest rates rise, bond yields also rise which takes money out of the overall market.

Realistically, all this drama shouldn’t mean too much for private markets, but it does have some implications. First, most private market valuations are based on public market valuations in some way. Also, lots of VC firms also invest in the public market. If they investments do worse, and their outlook is more bearish, they invest less in speculative investments like startups. This means valuations in the private markets tend to decline to make up for all of this, which can be a good thing for returns. You’re getting the same companies, just cheaper. As long as they survive, it can really pay off in the long term.

Lastly, since that VC money is drying up it means companies look to alternative financing. Debt isn’t looking good right now because of interest rates, so lots of companies have been flocking to equity crowdfunding. This is actually really good for the industry because it means better companies are coming to investors (because they would normally go VC) and they’re coming at lower valuations. This could help spur growth in the industry and really help investors in the long run that capitalize on my “Tip of the Month”.

StartEngine specifically has mentioned that this is exactly what is happening with some of their recent updates:

And KingsCrowd shows that the average valuation is starting to trend down, after trending up for the past several years:

Showing a decline from an average valuation of about $25 million and dropping roughly 20% to 21 million on average. I even speculated on this concept a while ago, so it’s nice to see that it actually came to fruition.

Top 3 Picks of the Month

There have been quite a few new campaign launches this month, and actually, quite a few that I like. The landscape is looking significantly more appealing than it did a few months ago as valuations pull back and higher quality raises go on the platform. If you’re wondering why most of these tend to be and will be. StartEngine companies it’s because I don’t like SAFFEs (which I will get into another month) and it’s hard to find companies that I don’t like raising by either debt or equity. There will be some in future articles, but there’s weren’t any that I liked on Wefunder or Republic this month not using SAFEs.

With that, here are my top 3 for the month:

  1. WebJoint — This company just relaunched its campaign and currently sitting at about 450% revenue growth over the past two years. A number of massive markets (like New York) just legalized cannabis for recreational use and they’re already positioned to capitalize on it. Read the full article on it here.
  2. GoSun — By most standards, their valuation is actually really solid. It’s currently 10x last years revenue, and they have $6m in revenue for 2021. This is for a company that has been innovating in multiple sectors in the solar markets and consistently growing revenue in the amount of about 100% YoY. All around solid, great traction, and doing well all around.
  3. DaxBot — As someone that has lived where the Starship robots have taken over, they are incredibly popular and growing. The market only has a handful of players, and Daxbot seems to be doing well. They have already rolled out robots and producing revenue from them, so they have a working product and can easily scale for growth.

Monthly News

While there hasn’t been a ton of news sector-wide, there definitely has been tons on the overall market. For example, we officially entered a bear market in June which means stocks have declined more than 20%. Further, the overall NFT market has crashed with top projects like the Bored Ape Yacht club crashing as much as 80% in 6 weeks. Lastly, the Crypto market has been getting hammered, with Bitcoin down 75% in the past few months.

This has been due to what I briefly said earlier where a number of massive crypto funds. exchanges, and other companies have crashed and completely went under. One of the first, and largest ones was Luna, one of the top 10 largest crypto’s on the planet. In a $46 Billion meltdown, the cryptos stablecoin depegged and then plummeted into nothing which took the unpegged luna token with it. They both plummeted 99.99% and result in pretty much a complete loss for everyone involved.

One of the first was the Celsius exchange and lending platform which halted all deposits, deposits, withdrawals, and trading and then announced they had no money pretty much at all. After that, a multi-billion dollar firm, 3 Arrows Capital went under and defaulted on a $670 million debt. Shortly after Voyager recently closed all trading, deposits, withdrawals, and rewards. BlockFi went underselling their assets for $25 million from a previous valuation worth $2 billion.

So, ya, good stuff. It also seems Crypto investments on Republic (which tends to be the Crypto focused) which traditionally max out almost instantly have slowed down significantly. There are several great-looking projects on there seemingly raising nothing despite a few months ago they would have maxed out almost instantly.

Other Content to Check Out

SMBX is an equity crowdfunding platform that has been gaining a lot of traction recently. They raise funds through amortized debt instead of equity, and so I looked into whether the platform is worth it. Here’s the video on that:

Are Small Business Loans A Good Passive Income? — Small Business Bond Marketplace (SMBX) Full
Breaking down the Small Business Bond Marketplace (SMBX) and how it works, and whether it’s a good place to park your money. I did some calculations and… I…

Other that, I think that’s enough for the month! Until next month!



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Caleb Naysmith

Caleb Naysmith

Founder of Democratizing.Finance — Law School student, Army Officer, and writing about Startups and Equity Crowdfunding!