GrowthFountain Review 2021: Pros and Cons of Small Business Crowdfunding

As of October 18th, 2021 the GrowthFountain site seems to be down and the business closed. We are not sure if/when it will available again.

Thought you needed to be a wealthy venture capitalist to invest in startups and small businesses? Think again — you don’t even need to be an accredited investor or have an astronomical net worth. The introduction of crowdfunding has changed the name of the game for investing, connecting businesses directly with individuals who can fund them.

If that’s enough to get you curious, you’re in the right place. In this GrowthFountain review, we’ll cover:

  • What GrowthFountain is and how it works
  • Types of investments offered
  • Typical loan terms and returns
  • How to create an account and get started
  • Pros and cons of the platform

Time to take a deep dive.

Source: screenshot (https://growthfountain.com/

GrowthFountain Review: Quick Facts

  • Minimum investment: $100
  • Maximum investment: $2,200 to $107,000
  • Fees: $10 per investment
  • Investment types: Stocks or revenue-share loans
  • Investment terms: Long-term with no fixed end date
  • Who can invest: Anyone
  • Expected returns: No fixed returns

Pros

  • Low minimum investment 
  • Potential for high returns
  • Accreditation isn’t needed
  • Easy to sign up and use
  • Helpful education portal
  • Opportunities to talk to company directors 

Cons

  • Limited investment options
  • High fees for low investments
  • High risk
  • No guaranteed returns
  • No option to sell investment

What is GrowthFountain?

GrowthFountain is a crowdfunding platform focused on small businesses and startups. Investors like you can lend to or invest in companies so they can cover their costs today, in the hope that they’ll more than pay you back in the future.

Who Can Invest? 

Unlike some alternative investments (such as real estate), GrowthFountain isn’t limited to accredited investors. And considering the minimum investment is just $100, you don’t exactly need to be a millionaire to use the platform, either.

Having said that, opportunities on the platform may have their own requirements, and your eligibility will be checked when you apply to invest.

How does GrowthFountain Make Money?

GrowthFountain makes money by acting as an intermediary between investors and companies. It charges fees to both the startups that raise funding through its platform (who pay a success fee of 6% if their funding round is successful) and the investors that use it to make money (who pay a fixed fee of $100 to invest).

Is GrowthFountain Legitimate?

GrowthFountain is a Funding Portal, meaning it’s registered with the U.S. Securities and Exchange Commission (SEC) to mediate between small, emerging businesses raising capital and individuals looking for investing opportunities. It offers Regulation Crowdfunding under Title III, meaning it must comply with certain criteria — including the need for companies on the platform and their staff to undergo a background check.

The platform is also regulated by the Financial Industry Regulatory Authority (FINRA), a non-governmental institution focusing on US-based brokers. 

Finally, GrowthFountain uses a FDIC-insured third party to hold and process funds before they reach the company of interest, ensuring that investor money remains safe.

In other words, the platform is legitimate. However, this doesn’t necessarily mean that you’re guaranteed to get your money back, as you’ll soon find out.

Investment Options

Okay, so you now know that you can invest in startups on GrowthFountain, along with a little help from the rest of the “crowd” — that part is intuitive enough. But the exact mechanisms used for investing may work a little differently to anything you’re familiar with. 

Investment options on the platform fall into one of the following two categories: stocks or revenue-share loans.

Stocks

Buying a company’s stock is probably familiar enough. Although investing through crowdfunding is a different experience from buying a stock through a typical broker, and it involves a lot more risk, the logic is the same. You buy a share of the company, and if the company’s valuation increases, your share will be worth more, giving you a good investment return.

However, there’s one crucial difference: because the company isn’t actually publicly listed, you can’t buy or sell your stock whenever you want.

Revenue-Share Loans

The concept of lending through a revenue-share agreement might not be quite so familiar. On GrowthFountain, the arrangement is for investors to receive 5% of the company’s sales from its second full fiscal year onward until the firm pays back double the original investment.

This is aimed mostly at companies with a cash flow problem.

Which Should I Choose?

Your choice depends on your risk tolerance and how optimistic you are about the company. If you opt for the revenue-sharing option, you know your investment is capped at double of whatever you lent — so if the company ended up being worth millions, you’d be kicking yourself. 

But considering most startups end up going bust, the revenue-share option is certainly safer.

Unfortunately, although the choice between revenue-sharing and stocks is great in theory, the offering in practice is a little lackluster. In fact, at the time we signed up, there weren’t any opportunities available at all; we were prompted to sign up for the mailing list instead. 

However, if you’d like to get an idea of the types of investments that are typically offered, you can find some past choices instead.

Source: screenshot (https://growthfountain.com/companies

Returns and Risk

Now you’ve had some time to think about the investment options and what they entail, the reality of the risks involved on a platform like GrowthFountain might be starting to sink in. Perhaps you’re curious about whether the returns make it worthwhile.

That’s up to you — but here’s a breakdown of the facts.

Risks

It’s not exactly a secret that investing in startups is a risky business. Venture capitalists, who primarily invest in these early-stage companies, generally invest in several companies under the assumption that most of them will fail, hoping that at least one will become a unicorn and make the other losses immaterial.

In other words, only invest what you’re prepared to lose, and don’t expect to get your money back at all.

To find out more about the risks involved, we recommend checking out the education portal GrowthFountain has helpfully provided.

Returns

With high risks come (potentially) high returns.

The returns you can expect will depend partly on the type of investment you opt for: revenue-sharing or stocks. 

If you choose a startup that goes on to become the next Google or Tesla, you could achieve astronomical returns by opting for stocks, but you may get nothing back if the company fails. Therefore, GrowthFountain doesn’t offer any kind of guidance about “typical” returns.

To make matters even less appealing, GrowthFountain investments typically don’t offer dividend payments or distributions along the way.

As for revenue-sharing, you stand a good chance of getting regular payments (as long as the firm doesn’t go bust), although you’ll have to wait until the second fiscal year. The return you’ll end up getting depends on how long it takes for the company to pay you back — the longer they take, the lower your annual return will be. This could be anything from 10% for a typical four-year repayment schedule to 20% for an eight-year timeline. 

At this point, you’re probably wondering what returns GrowthFountain investors have been able to achieve in the past. Unfortunately, there’s a lack of transparency, with no document on the website detailing past returns. We recommend you vet any company you invest in very carefully.

Using the Platform

Getting started on GrowthFountain is simple enough. It takes a few seconds to sign up, and you’ll only need your email address to register. It’s not necessary to give your social security number at first, but you may need it later on in the process.

Then, you’ll immediately be able to see the investment opportunities (assuming there are any). If you see something you like, you can complete a Subscription Agreement, which will determine your eligibility and give you further details. You’ll also be able to see more information about the nature of the opportunity on the Form C.

After you invest, you’ll need to wait for other crowdfunders to make up the rest of the funds, but your money will be held securely. When the company meets its target, you’ll become an investor — and if it doesn’t, the money will be returned to you, minus the $10 fee.

User Experience 

One of the features we like from the platform is the opportunity to ask questions directly to the companies through an online channel, ensuring you’re not left in the dark about the business’s offering. 

You’ll also have the option to talk with other investors through the forums.

However, the customer service is pretty poor. GrowthFountain only lists an email address, with no option to contact anyone through the phone or live chat.

Minimum and Maximum Investment 

The minimum investment is just $100, which is a serious perk of using the platform. Even if you’re not sure that startup crowdfunding is the right choice for you, you can elect to test the waters before you commit fully.

Meanwhile, the maximum amount you can invest depends on your income and net worth, but it will be between $2,200 and $107,000 in a year. GrowthFountain will give you further details about this when you start investing.

Pricing and Fees

There’s a $10 fee for each investment. This might not sound like much at first, but since it’s a fixed cost, it can work out to be a lot for small investments. For instance, if you stick with the minimum of $100, that’s a 10% fee.

There are no other fees or hidden costs associated with GrowthFountain.

Accessing Your Money

Once you invest, you’ll have to hold your investments for twelve months at the very least before you can sell them. This is due to regulation rather than at the discretion of GrowthFountain.

Once a year has passed, you may be able to resell, but this isn’t a guarantee — it depends on whether there is ever a public trading or exchange to sell them on. However, in some cases, you may be able to pass them on to family members or transfer them back to the company.

The only exception to this is if you change your mind about investing in the first 48 hours after depositing your money, in which case you’ll be able to cancel your investment.

A Little Bonus…

When we signed up to GrowthFountain, there was a promotion running that gave all users $25 credit toward their first investment — fairly generous if you’re only investing the minimum of $100.

This wasn’t particularly useful for us since there weren’t any investment opportunities at the time, but provided new opportunities spring up before the maximum 90 day period, it’s worth checking out.

The Verdict

There’s definitely plenty to like about GrowthFountain — it’s great that it gives “normal people” a chance to invest in startups, the low minimum investment is a big plus, and the choice between different investment types gives some nice flexibility.

But some things raise red flags. Specifically, the high risk, low liquidity, poor customer service, and lack of transparency or guarantees regarding returns.

Is GrowthPlatform the best platform of its type? Possibly not. For instance, competitor SBMX is also open to non-accredited investors, has a minimum investment of $10, and lets you invest in small companies. However, it boasts average returns of 6.5%, the option to sell your investment through its own market, and has the added advantage of helping you invest in local businesses. These are all qualities that GrowthFountain lacks.

That doesn’t mean you should dismiss GrowthFountain but do your research.

Don’t Follow the Crowd — Unless You’re Crowdfunding 

GrowthFountain isn’t the right choice for everyone, but with such a low minimum investment, you might be interested in using it to experiment with a new way to invest. Or maybe you just want to register for updates about new opportunities and make your final decision when you can access more details.

Whatever you decide, make sure you don’t lose track of your investments, especially if you’re investing lots of small amounts into different platforms. Technology makes this easier than ever — for instance, Money Minx’s automated net worth tracker will sync with all your investments, even if they’re alternative or obscure. Why not get started for free?

You might also be interested in checking out the Money Minx community to discuss GrowthFountain and other investing platforms with profit-minded individuals. Everyone is welcome, even if you’re not a member.

Sarah Bromley is a personal finance and fintech writer based in the U.K.

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