EquityNet is an online network that connects capital-seeking businesses with accredited investors. The platform’s calling card is its data-driven approach to supporting investors and businesses in the matchmaking process. It does so by delivering standardized, and contextual, analytics and tools to both sides of the market. Currently, introductions are facilitated online, with transactions executed offline beyond the scope of the platform, but the company is aggressively positioning for the advent of accredited crowdfunding under Title II. I had the pleasure to sit down the CEO, Judd Hollas, and learn more about his team’s platform and how they’re looking at, and preparing, for the crowdfunding market.
Founded in 2005, EquityNet attributes $200 million in fundraising to introductions made on its platform. Similar to Gust, the company captures and stockpiles an arsenal of data, from both internal and external sources, including the SBA and others. This data is the core of EquityNet’s Enterprise Analyzer, a patented technology that powers its portfolio of investor and entrepreneur-facing products. A couple of which, the Startup Risk Calculator and Startup Valuation Calculator, are branded specifically for the crowdfunding market.
Its keystone product populates standardized investment reports for each listed company, giving benchmarked guidance around valuation, risks, undercapitalization, and other contextual scoring factors. (View a sample report.) This expedites the onboarding process for businesses; and allows investors to efficiently screen and cross-analyze companies. In an informational market, where noise is damning, this product positions itself to surface actionable signals for both investors and businesses.
This raises an interesting question: Can due diligence be automated, and if so, to what degree? The answer is especially nuanced in context of early stage securities, as risk factors are often highly idiosyncratic, and qualitative. (Not to mention those wretched black swans swooping down, deadlier and in greater numbers in private markets.)
EquityNet’s technology isn’t positioned to replace manual due diligence, but rather, make it more efficient. Let’s fancy an example of an existing restaurant seeking to crowdfund $100k. As an investor, I immediately see its margins are markedly below the industry average, as calculated from a database of comparables, and publicly ask why. This could be a red flag: a sign of management not having a handle on costs; or perhaps an opportunity: a consequence of not securing a liquor license until this year. Either way, contextual and relevant information is quickly surfaced for the crowd to act on. Herein lies the value proposition.
This is one great example of how technology coupled with private sector innovation stands to make our crowdfunding markets more efficient and productive.