The Jumpstart Our Business Startups (JOBS) Act is an Obama-era law that went into effect in 2016. It wasn't a flashy piece of legislation and passed on bi-partisan grounds. But the law is starting to have profound effects.
The JOBS Act allows companies to raise funds from everyday retail investors and customers, giving American small businesses a funding source previously unavailable to them. They are no longer held hostage by venture capital or predatory loans to fund growth. Now, they can raise from those who deserve it most: Their customers, fans, community and supporters. Tens of thousands of jobs can be directly attributed to this law.
The JOBS Act also gives everyday investors the ability to invest in early-stage companies and startups before they hit the stock market. These raises are primarily facilitated through equity crowdfunding portals like StartEngine and Wefunder. Investors visit the portals and browse hundreds of early-stage companies where they can invest relatively small sums of money.
StartEngine itself is open for investment and has amassed tens of thousands of investors over the years, resulting in over $60 million invested in the platform. But unlike the stock market, once you invest, there's no going back. These types of investments can't be sold until the company is bought out or conducts an initial public offering (IPO). When companies do conduct an IPO, the gains can often be quite substantial.
Most notably, one of the largest raises ever conducted on StartEngine recently launched an IPO resulting in substantial gains for the investors involved. Monogram Orthopedics Inc. MGRM conducted an IPO on May 18 with over 20,000 retail investors on their cap table. The majority of this came from the company's Series B raise on StartEngine, which ended in February 2022. Monogram raised over $22 million from 13,509 retail investors during this raise. Investors in that round purchased shares at a price of $7.52, but the company later conducted a 2-for-1 stock split meaning investors have an effective share price of $3.76.
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On the company’s second day of trading, the stock reached a high of $42.05 per share and ended the day there. Over 13,000 retail investors are collectively sitting on gains of 1,018% if the stock holds its current price or climbs higher. The Series A round, also open to retail investors, was closer to an effective share price of $2, meaning some investors have already cleared 2,000% in gains.
Retail Investors’ Thoughts On The IPO
Benzinga interviewed two investors who invested in the earliest stages of the company. Zach E. invested in Monogram because, "a family member [had] a past surgery that went bad."
Monogram specializes in 3D-printed knee replacements and robotics that can perform surgery. Zach said he "saw how this could have changed their life for the positive" if the technology were available at the time. Investments usually go directly to the startups, meaning even small amounts of funding can have a large impact, as seen with Monogram. Thousands of investors pooled relatively small amounts of money and brought the company to an IPO.
Investor, Elias P. said, "I invested in Monogram in 2020. It’s been awesome to see their continued effort towards improving the orthopedic surgery experience! I appreciate their excellent investor-facing communication and their continued involvement of retail investors through platforms like SeedInvest and StartEngine. I love that they’re seeing interest post-IPO! I’m looking forward to seeing their less invasive custom implants and precise robotic arm go to market."
Perks Of Getting In Pre-IPO
If you had invested in Rivian Automotive Inc. during its IPO at an over $100 billion valuation, you would now be down 89% over the past year and a half. Many startups seek funding for their first investment rounds around the $20 million valuation. On Rivian's IPO day, a $1,000 investment at that $20 million valuation would be worth as much as $5 million.
This trend is becoming all too common. Uber Technologies Inc. conducted an IPO with around an $80 billion valuation. But its seed stage investment valuation was a mere $3.86 million. On IPO day, a $1,000 investment into Uber would have been worth almost $10 million if you had invested during its seed round. If you invested in Uber on its IPO day in 2019, your investment would be down 5% today.
Even for the companies that have done well post-IPO, investors take on much of the risk of future success at a fraction of the gains. DraftKings Inc. is up 145% since its IPO in 2019. This is great news for all investors. But when the initial $1.4 million from the DraftKings seed round is worth roughly $1 billion today, there's a substantial amount of money being left on the table.
This type of investing isn't without its risks. For every DraftKings, there are dozens of sports-betting startups that fail and result in the entire loss of one’s investment. The general idea is actually to bank on these larger wins to make up for the losses on those that go bankrupt. If you invest the same amount in 10 companies, you only need one to result in gains of 1,000% to break even.
See more on startup investing from Benzinga.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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