The Crazy Thing That Happened With My Crowdfunding Investment
Crowdfunding Works As Part of a Complete Investment Strategy
Last week, I got an exciting email from Honeycomb Credit, an investment crowdfunding portal focusing on small business debt issuance. The email explained that a restaurant called Murray Hillbilly here in Jacksonville, Florida, that Gail and I invested in was sending us money!
This is pretty cool. I’ve made a lot of crowdfunding investments, but I confess this is the first one that yielded cash in return. For years, I’ve dabbled with Kiva; the loans I’ve funded there have been repaid, but the money automatically stays on the platform. I could pull it out but enjoy reinvesting there.
I’ve approached impact crowdfunding with a similar goal. I’m more focused on helping people working to address social problems than I am on getting money in return. Of course, I understood the terms of my investment in Murray Hillbilly but anticipating the deposit didn’t in any way reduce the pleasure of receiving it.
Having made almost two dozen crowdfunding investments, the variety of terms and conditions across my little portfolio varies dramatically. Some involve only a legal obligation to issue equity to me in the future if specific fundraising goals are achieved. Debt, like my investment in Murray Hillbilly, sits at the other end of what I see as a spectrum.
One of the great things about crowdfunding is that investors can not only choose the sorts of companies they wish to back but also choose to invest only in companies issuing securities on terms they like. Investors are in control. You are in control.
Let me reiterate that everyone can invest via crowdfunding. You don’t have to be wealthy or have an MBA. Anyone can do it. One of the things we’ve found with the Impact Cherub Club we launched a year ago is how much fun we can have.
We’re holding our monthly Impact Cherub Club meeting on Tuesday, December 20, at 1:00 Eastern. You are invited to join us. That is literally true. If you are reading this, you are invited! Register here.
November Meeting Report
Due Diligence Reports and Investment Decisions
At last month’s meeting, we heard diligence reports from club members on three companies, Vulcan Augmentics, Coco Noir Wine Shop & Bar, and BluShift Aerospace. The club members discussed the pros and cons of investing and voted to reach consensus investment recommendations for the members.
We don’t announce our investment recommendations. If you’d like to know what we’re seeing, selecting and recommending, please join us on December 20, 2022, at 1:00 PM Eastern. There is no cost to participate; you don’t have to invest anything ever. When members choose to invest, I don’t touch the money and don’t earn any fees, commissions or favors.
At the meeting, we took a few minutes to discuss how to read financial statements. The income statement and balance sheet of a startup—and the projections for future income and balances—can be more intimidating than they are important to investing in startups.
The income statement represents financial activity over a period of time, often a month, year or quarter. When looking at an income statement for a year, the revenue line is the sum of all the products or services sold by the company. The cost of goods sold line represents the expenses directly resulting from the sales, the cost of the products. The gross profit is the amount by which the revenue exceeds direct expenses.
Below that line are operating expenses, including sales, marketing and administration. This yields an operating income. After adjusting for interest income and expense along with miscellaneous items, the company reports pre-tax income. The income is then subjected to tax, and a net income for the period is reported as the bottom line.
The Balance Sheet
Unlike the income statement, which summarizes activity over the reporting period, a balance sheet reports financial balances at an instant in time that corresponds to the end of the period. If the income statement report income for a calendar year, the balance sheet will reflect balances at the end of the year.
It is easiest to think about balances as being like the balance in your checking account. Accounts receivable (the money customers owe the company) and accounts payable (the money the company owes vendors), inventory, equipment, debt and other obligations can all be determined as of a point in time and are reported on the balance sheet. The balance sheet starts with assets and then tallies up liabilities and equity. The name for a balance sheet comes from the fact that the assets must equal or balance the liabilities plus equity.
Just knowing this little bit about financial statements will allow you to begin making sense of a company’s numbers before you invest. Over time, it will become second nature.
New Company Screening
Last month, we took a first look at the following three companies. Club members volunteered to conduct some due diligence and report on all of them at our next meeting on December 20, 2022, at 1:00 Eastern.
Black-owned stock photography company pocstock reports historical revenue of $450,000 and has previously raised nearly $750,000 in a seed round. pocstock exists to provide inclusive, representational stock photography highlighting not only people of color but also diverse religious members and LGBTQ community members. Founder Steve Jones spoke at SuperCrowd22. The company is raising on Wefunder. Kathleen Minogue recommended pocstock for consideration.
Mana Pacific is working to replace expensive fossil-fuel-generated electricity in the Pacific Islands with more affordable renewable energy. Many people in the Pacific have no access to grid power. Using small gas or diesel generators is expensive, noisy and polluting. With an investment of just $100,000, the company’s founders hope to reach positive cash flow. The company is raising on Raise Green. Darcy James recommended Mana Pacific for consideration.
This woman-owned business makes edible single-use cups for coffee and other purposes. After importing similar cups from Europe, she identified ways to make hers even more environmentally friendly. This fast-moving crowdfunding raise enables her to scale the business to achieve market validation while she raises $6 million for a facility that enables genuine commercial scale production. Amai is raising on Wefunder.
Next Meeting—December 20, 2022, at 1:00 PM Eastern
At our next meeting on December 20, 2022, at 1:00 PM Eastern/10:00 AM Pacific, consistent with our plans for future sessions, the agenda will have three items:
Preliminary Consideration of New Candidate Investments
We’ll begin with the due diligence reports from the Impact Cherub Club members who volunteered to research the companies listed above under “New Company Screening.” After hearing the members’ reports, we’ll vote to determine whether or not to recommend investment in the companies. The decision will be made available to everyone who registers to attend, including those who don’t make it. Register here.
We’re excited to have Club member Jackie Logan, Chief Investment Officer of the crowdfunding portal Raise Green, explain the differences between convertible notes and SAFes (simple agreements for future equity). Both are commonly used in crowdfunding offerings. She’ll help us understand the benefits and disadvantages of each.
Preliminary Consideration of New Candidates
At our December meeting, we’ll conduct a preliminary review of three companies raising money via Regulation Crowdfunding on FINRA-registered portals. If you have identified a social enterprise or community-building company raising money via investment crowdfunding, feel free to recommend it to me for consideration next month. Club members suggested one of the candidates we’ll consider.
Here is a bit of information about each of the three we’ll consider this month.
Azure Printed Homes
Azure Printed Homes co-founder Ross Maguire recently joined me for an episode of Superpowers for Good. His co-founder, Gene Eidelman, joined the Impact Cherub Club.
The company does what the name suggests. Using recycled plastic, the company prints tiny homes and offices. These accessory dwelling units, almost always abbreviated as ADUs, are tiny homes intended as rentals or guest quarters. These units could increase housing density and affordability in suburban communities. The company is raising on Wefunder.
Organized by a female founder as a public benefit corporation, Kitsbow is an outdoor sporting apparel company based in North Carolina that is focused on environmental sustainability and community building. The company reported revenue of $3 million in 2021. Old Fort, NC, has experienced three decades of economic decline. Kitsbow has hired dozens of people at fair wages. The company is raising money on Wefunder.
tbh, modern shorthand for “to be honest” (for the benefit of folks with gray hair like me) is producing a vegan, environmentally sustainable version of Nutella that also features lower sugar and more protein. Only for the sake of due diligence, I’ve ordered some. (Wink, wink.) Founded by Noah Schnapp, who played Will Byers in Netflix’s Stranger Things, the company is led by a pair of women who share the title of Co-CEO. The company is raising money on Republic.
Please join us for the monthly Impact Cherub Club meeting on December 20 at 1:00 PM Eastern. There is no cost or obligation. We’re genuinely having fun! Register here for free.