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Stop Falling For EqCF Scams
Learn How To Bulletproof Your Startup Portfolio
We’re halfway through January, and the New Year has already been exciting. Unfortunately, it’s been exciting for all of the wrong reasons. With certain companies failing late last year, and early into the New Year, it seems the hard times aren’t quite behind us.
Stay tuned because we have a solution to make sure you can reduce your chances of falling for scams or investing in sinking ships.
Recent News
This week, we covered three different companies: M.C. Squares, Here, and Zennihome all for different reasons. First up: M.C. Squares rose to fame a few years ago after getting a deal from Mr. Wonderful on Shark Tank. The company capitalized on this momentum to reach millions in sales and raised hundreds of thousands on platforms like StartEngine and Wefunder.
Unfortunately, the news recently broke that the company filed for Chapter 11 bankruptcy. This is terrible news, but it' might not be quite as bad as you think. The chances of the company completely recovering from bankruptcy are low, like any company. But unlike Chapter 7, the company plans to keep operating. Rather, Chapter 11 is used as a bargaining tool of sorts to get out-of-control costs back under control. Read all about this nuance and more below:
Next is exactly that: Here, the fractional real estate investing platform, announced they will be winding down. This comes a few short months after investors pumped millions into the company? So what went wrong? Checkout this article on the warning signs, and how you can use Hubtas to avoid these companies in the future:
Want to see the kind of research and analysis that we recommend for startup investments? Here’s a comprehensive breakdown of Zennihome, a popular company currently raising on Wefunder. While there’s more to it than just this, these kinds of considerations are a great start. Read all about it here:
Feature of the Week: Runway & Burn Rate
Investing in a startup that fails can be a hard pill to swallow. Even if its expected in this line of investing, it can still hurt. But what hurts even more is investing in a company that fails within months of your investment. Unfortunately, we’ve seen this all too often in the equity crowdfunding industry.
Fortunately, using the Hubtas platform, you can prevent this or atleast substantially increase your chances of avoiding it. Data driven investing isn’t just a buzzword, it’s an important part of investing and allows investors to make informed decisions regarding their investments.
Runway is essentially how much months a company has before it goes bankrupt. This can be calculated by determining a companies monthly burn rate by cash on hand. Burn rate is simply how much money a company is losing per month. This can be calculated by finding out how much money a company is losing per year then dividing it by 12.
It might sound simple, but it’s a crucial calculation. If you see a company has $200,000 cash on hand, you might be inclined to think they have plenty of runway left. But if they’re burning $1.2 million per year, they only have 2 months of runway left. This is determined by taking the $1.2 million per year loss, dividing it by 12 to get $100,000 per month. Then you get the runway by taking their $200,000 cash on hand and dividing it by the $100,000 per month burn.
At that point, investors should be asking some tough questions about the future of their business and where it’s heading. If you do, it’s likely some less than favorable answers will arise and you can avoid sinking ships.
We offer both of these data points and more on Hubtas for every company in equity crowdfunding.
Get hundreds of data points, this feature and DOZENS more for only $10/month with Hubtas Premium.
Quant Score Deep Dive
With over $1 million raised and $5 million revenue since 2021, The Build Club continues to see incredible traction. Even more telling? The company is a top-ranked startup on Hubtas.com. It scores well in nearly every metric and has strong growth.
Going along with the theme here, it’s important to take into account it’s burn rate and runway. As of their 2022 audit, they were burning $192.6k per month with only $490k cash on hand. This leaves them with only 2.5 months of runway left. But this audit was as of December of 2022, so over a year has passed, and it’s not exactly clear how they made it because they’re becoming more unprofitable as they scale. They also have a decent amount of debt, but that could be convertible notes.
Seeing that they made it, it’s clear they either received follow-on funding or moved toward profitability. This would be a great question to ask them to get better insights on the company. Unfortunately, for equity crowdfunding investors, we only get data every year or so. But using that data to get as much information as possible, and knowing the right questions to ask is important.
Here’s a good recap on these key data points, and others:
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