Mainvest Review 2022: How To Invest In Early-Stage Businesses
Quality of investments
Reviewing Mainvest’s strengths and weaknesses is a good way to get a feel for the platform.
- No investor fees and a low $100 minimum
- Open to non-accredited investors
- Businesses are pre-vetted
- The IRR formula muddles earnings analysis
- Your money is tied up for years
- Illiquid — there is no secondary market
What is Mainvest?
Until recently, investing in early-phase businesses with lots of growth potential was reserved for venture capitalists and accredited investors — that last one is a fancy way of saying “rich people.” Then in 2015, the SEC adopted rules that made business crowdfunding legal, and in 2018, Mainvest opened the doors of what had been an investment class for the 1% to anyone with $100.
The term “crowdfunding” likely calls Kickstarter and GoFundMe to mind. Mainvest is much different.
Traditional crowdfunding platforms don’t facilitate investments. Users make donations to a person or business, sometimes in exchange for a small reward like a duffel bag or some other piece of branded merchandise. The people and businesses soliciting funds are not allowed to offer financial returns or equity positions.
With Mainvest, you’re investing in small businesses as equity securities (an ownership share) or debt securities (the promise of repayment with interest).
Types of Investment Opportunities
Mainvest’s name is based on the concept of investing in Main Street. Most opportunities are brick-and-mortar small businesses — Mainvest encourages investors to buy into businesses in and around their own communities.
A far cry from the giant corporations listed on the stock market, Mainvest hosts mostly businesses like cafes, breweries and small players in the legal cannabis industry. Here are a few recent success stories.
- Speakeasy Donuts in Salem, Mass., raised $75,000 from 132 investors.
- Deep Sea Vegan — launched by an acclaimed diver and chef in Nashville, Tenn. — raised $23,000 from 69 investors.
- A trendy bar and diner called Manaia Collective in Kansas City, Mo., raised $121,000 from 138 investors.
This Kind of Investing Comes with Risk
Since Mainvest uses SSL security, your transactions are as safe as they are with your bank, but loaning money to startups and small businesses is inherently risky.
The businesses you’ll see soliciting funds on Mainvest are much, much smaller and less stable than those that issue company stock — and not just behemoths like Coca-Cola and Amazon. Comparatively, even small-cap companies are enormous next to the mom-and-pops on Mainvest.
By Mainvest’s own analysis, the companies it lists are much riskier bets. Some can’t secure traditional funding, nearly all have limited access to capital, none have endured the rigors of SEC examination, and it’s all but certain that some won’t be able to repay what they borrow from investors. Small businesses are usually run by the people who founded them — not specialized, experienced management teams — and many fail in those crucial first few years.
Only invest money that you’re willing to lose, because lose it, you might.
The Rewards Can Be Jumbo, Too
With greater risk comes the potential for greater rewards — and Mainvest investors target hefty returns of 10%-25%. Investors get a share of the company’s revenues, which means that when the business grows, so, too, will the investor’s profits.
One glaring drawback is the use of the internal rate of return (IRR) metric, which uses multiples like 1.5x. That represents the expectation of getting back $150 from a $100 investment.
The industry standard, which is familiar to stock market investors, is to use a percentage — not a multiple — based on the annual rate of return. In the case of the $150 example, the annual rate of return would be 12.81%, presuming a five-year maturity date.
Assessing potential gains with IRR takes some getting used to.
What You’ll Get With Mainvest
GOBankingRates awarded Mainvest 4.6 out of five stars based on the following criteria.
Private business lending was long the domain of high rollers with cash and connections — and many of Mainvest’s competitors are still open only to accredited investors, who must meet at least one of the following criteria:
- You’ve earned at least $200,000 for two years straight — $300,000 for married couples — and expect to earn at least that much again this year.
- Your net worth is at least $1 million not including your primary residence.
- The SEC declares you an “Accredited Investor.
With Mainvest, anyone who is 18 years old and has an active bank account can get in the game with a minimum investment of just $100. No competitor has lower barriers to entry.
Quality of Investments
The businesses listed on Mainvest have not run the gauntlet of the SEC’s microscopes, but the Mainvest staff does conduct thorough:
- Anti-fraud vetting
- Responsibility checks
- Bad actor checks
- Yellow flag BACs
- Continuous review
At the heart of the Mainvest vetting system is an effective and imaginative standard called “social underwriting.” In order to be listed on Mainvest, business owners must first raise at least $10,000 from at least 10 people they personally know. This policy has contributed to an impressive good-standing percentage — Mainvest businesses have a repayment rate of more than 96%.
Mainvest positions itself as a partner in both research and execution from the start. When you sign up, Mainvest will help you build a portfolio that aligns with your personal investment goals and philosophies.
Not only is it easy to contact and consult Mainvest staff and customer support, but you can communicate directly with the owners of the businesses that you’re funding or considering investing in.
The site is user-friendly and intuitive, making it easy to research potential investments, even for people without a background in business analysis. In the “investment opportunities” section, just click a business that interests you for an overview of the business’s mission, history, location, physical space, leadership, accomplishments, and plans for the future.
The “data room” tab provides a clear picture of the business’s fundamentals, with statistics, charts and graphs detailing things like the business’s operating capital, expenses, buildout costs, sales, and profits. You can also view and receive updates about each business and join the discussion with other investors about that specific business.
Mainvest vs. Competitors
There are similar sites that offer a greater variety of investments and sites that offer better access to advice from investment professionals. No competitor, however, presents fewer roadblocks to the little guy than Mainvest.
OurCrowd, for example, is open to accredited investors only — as are so many equity crowdfunding sites. But even those that don’t require accreditation are often out of reach to the average investor.
EquityZen, for example, will let you get away with a $10,000 investment your first time. After that, the minimum goes up to $20,000. Plus there’s an investment fee of 5% for investments up to $500,000, at which point it drops to 4%. It drops to a still-high 3% only when you hit $1 million.
Yieldstreet is technically open to non-accredited investors, but they can join only one fund and only with an investment of at least $500.
How to Apply
There is no application process. If you’re 18 years old and you have a bank account and $100, you can start investing in small businesses today.
Is Mainvest Right For You?
Mainvest was built for investors who are willing to take big risks in pursuit of big gains — but there’s more to the lure than just ROI. In a year that has so far been brutal to stock investors, Mainvest offers the average investor a unique kind of portfolio diversity — not to mention a good hedge against inflation — and a chance to buy into businesses that aren’t worth billions.
Mainvest has democratized private business and startup investing and made it accessible to the common person. There are others like it, but none that allow so many people to get started with so little.