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StartEngine just made a move that, on the surface, looks small.

They acquired Vinovest - a platform for investing in wine and whiskey - in an all-stock deal worth roughly $15M.

But like most things in the equity crowdfunding world, the headline undersells what’s actually going on.

Wine & whiskey is part of the picture, but the vision is much larger.

It’s about what StartEngine wants to become.

StartEngine did not use cash to acquire the business, instead they issued 8.75M new shares.

With roughly 739M shares outstanding, that means:

So in comparison to StartEngine’s size, it’s a fairly small deal from a cost perspective.

We’ve seen a similar move from when StartEngine acquired SeedInvest, paying just ~$24M in stock.

StartEngine absorbed the users & infrastructure now write off ~$857K per quarter from that deal, and will continue to do so through 2030.

Because StartEngine generates more than that in quarterly profit, the write-off actually helps from a tax perspective.

That’s a hard maybe.

I’m not an accountant but if Vinovest continues running as a standalone product, it probably becomes harder to aggressively write it down for accounting purposes.

So while the structure is similar, the financial treatment may differ meaningfully.

Vinovest doesn’t disclose much financially. But here’s what we do know:

That last point is an important distinction from StartEngine’s current fee model.

StartEngine historically makes money from transaction fees, whereas Vinovest collects recurring AUM-based fees.

A ~2.6% annual fee is really high (to me at least) - investors need to generate +2.6% in annual returns just to break even. To put it into perspective with the broader landscape, here’s what other investments charge:

This isn’t StartEngine’s first foray into alternative assets.

They previously launched a Collectibles arm that included things like comic books, wines, art, and baseball cards.

It didn’t work, and StartEngine quietly shuttered that facet of their business. The presumed takeaway was that there was far less overlap in investment interests between startup investors and alternative asset investors.

With Vinovest, StartEngine is portraying the Collectibles closure as a pause on alternative assets, rather than a pivot in strategy. Vinovest users are not your typical retail investors.

In my perspective, here is StartEngine’s three-pronged approach to this acquisition. If one of these works, it’s a sound acquisition - if all three work it will transform StartEngine’s trajectory.

1

Cross-Sell Vinovest into startup ecosystem - StartEngine found that they couldn’t cross-sell startup investors into alternative assets that effectively. But perhaps the other way around can work → selling Vinovest members into startups.

2

Fill the flanks of StartEngine Private - Vinovest doesn’t disclose what percentage of their member base is accredited, but given the high investment minimums ($5,000), it’s high.

StartEngine got a peek at these numbers in their due diligence and must’ve liked what they saw. This audience could be perfect for Private, for more than just their ability to afford it.

At their core, wine investors are collectors (with Vinovest you have the option to have your wines sent to you, rather than trade them). It’s not a leap to think that they would enjoy ‘collecting’ blue chip startups, household names like OpenAI & SpaceX.

This is because collectors don’t want random early-stage startups with high failure rates. They want scarcity, prestige, and ownership of something recognizable.

For this reason, I can see StartEngine having greater cross-selling success than they did with Collectibles, since Private did not exist at that time.

3

Become the hub for tokenized alternative assets - this one’s a doozy. Howard Marks, the CEO of StartEngine, has mentioned his intent to digitize assets on the blockchain.

The business model for this is incredible, as StartEngine could sit back and collect a transaction fee every time the asset changes hands - in perpetuity.

This would be an incredible business model, but is really challenging to stand up as a market.

Owning the dominant player in wine & whiskey is a step towards establishing that market, and becoming a centralized hub for alternative investing.

If they acquire MasterWorks next, look out!

Comparing the deal to the SeedInvest acquisition, StartEngine is paying 2x more per user.

Clearly, StartEngine saw something they liked. It’s an inexpensive purchase for StartEngine, as they coughed up $0 in cash and only diluted ~1.2% by creating new shares.

The personnel they get in the deal are going to remain highly motivated, since any ownership they had will be translated into StartEngine equity.

And StartEngine can potentially reap some tax savings if they’re able to write off the acquisition.

Lastly, there’s all the upside I detailed in the three-pronged strategic approach of the acquisition. All in all, I like this deal at the surface level and believe it to be an aggressive push forward by StartEngine.

If they’re right, this deal will look like a steal. And if they’re wrong, it will simply be a (relatively) cheap mistake.

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