FundersClub for Investors and Startups
A Review of FundersClub and How It Makes Investors Money
What is FundersClub?
Funders Club offers a platform to invest in startups in which they've connected. They do a level of due diligence and they select companies and they give start up investors an opportunity to review the terms and make the decision on his or herself whether those are the right investments.
The pros or the positives of Funders Club is that it's simple to use, it offers a very simple dashboard to do start ups, and there's pretty solid deal flow. For example, I've personally invested in three companies thus far in FundersClub, including a very cool coffee start up that's taking over and really taking off in competing against massive conglomerates or giants like Starbucks. It's called Release Café. I've invested in Voiq, V-O-I-Q, as well as Home Light which is an awesome real estate company that's changing the way you find a realtor online.
I've personally used it and I would never recommend a company, any company or platform, if I didn't believe in it or if I hadn't used it, so keep that in mind.
In terms of some things that FundersClub doesn't get right, that they could improve is number one, the economics. The economics of the deals are not realistic based on revenue in projections of financial forecasts. In doing my due diligence I've noticed that many of the deals are up rounds that are only four or five months after a start up had already raised.
The economics of the deals are not realistic based on revenue in projections of financial forecasts.
That's a red flag for an investor. If for whatever reason, you see a start up and you're using a platform like FundersClub to look at their financials and you see a massive up round just within a few months, that should be a red flag. I mean, the reality is even if a company's growing 10 or even 20% which is massive month-to-month annually, there's no way that within a 4 to 6 month period that the valuation of that company should be doubled.
I think Funders Club needs to make that clear. There's two things, and I mentioned this in our book, Kings Over Aces, which is there's the economics of a deal and there's control. The economics being as a start up investor how much you're investing and what percentage of the company do you want to get for that investment.
The control is, do you get pro rata rights? Are those included in your investment? Are there drag along rights? Could you potentially get a board seat? Would you have not just economics that are favorable for you, but also control and help make the start up make decisions. None of the deals in FundersClub that I've seen thus far have the solid or more favorable deals happen to people who are starting the startups online. I'd be curious, I'd like to talk to the Funders Club to see if that's something they can work with to improve.
The other thing is the deal terms need to be favorable, right? I mean that's what I was talking about a second ago that you have to make sure that to start up investors if you want to really welcome them into your community, why not instead of doing massive up rounds where there was four months prior of valuation half that amount, why not instead try to make a better deal for startup investors online?
I mean, there's so many startup investors that are finding these startups through sites like FundersClub or AngelList, why not actually give them a reason to tell others about it. I think part of their user growth will come down to that, and it won't just be based on economic necessities or any potential down markings.
Why not try to make a better deal for startup investors online?
Overall, would we recommend it? I think with caution, I would recommend it. I mean I have to say I use it and I plan on still using the site, but it's not where I'm going to do most of my deals. In fact, most of our deals are going to go, the bigger deals, the big deals are going to happen on AngelKings.com where we find the best companies in the world. What could they prove that would drive me as well as many other Angel investors into their platform? Well Funders Club could make better terms for investors. Lower the care and management fees.
If you're a market place, and a lot of these market places on Angel investing are going to start competing just on pricing. Funders Club, We Fund, Angel List, they're going to start commoditizing investing in start ups. There's a massive uptake in Cloud funding right now and unless Funders Club reduces their carry, meaning the amount of money that's going back to general partner, and their management fees, I see sort of a stagnant growth. I give them three stars overall. I think that if they want to talk and want to improve these particular features I could see them improving and getting a higher star rating from us.
If you want to invest in start ups, you're absolutely welcome to take a look at Funders Club and also get in contact with us at Angel Kings. We don't compete directly with them. We are a specialized fund that finds their own start ups, does their own deal flow analysis and has scouts out there finding them, so we're not a marketplace just to be very clear.