Special Update on Ember Fund

Apr 6, 2024
Special Update on Ember Fund
This is a special edition of Outer Limits intended to provide a short update for subscribers who invested in Ember Fund, a former private deal recommendation of mine back in 2022. For anyone who didn’t invest in Ember Fund, you can disregard this issue. However, for those who are interested in investing in private companies, this latest update concerning Ember Fund provides some insights into how private deals can progress when investing in a Reg CF, Reg A/A+, or Reg D offering.

As a follow up to Friday’s Outer Limits, I spoke with Alex Wang, Ember Fund’s CEO, on Friday evening. So I wanted to provide an update on the latest developments with Ember Fund. 

In the last few days, investors who invested in either Ember Fund’s Reg CF or Reg D offering back in 2022 received an e-mail through Republic — the crowdfunding platform that brokered the raise — regarding a “Consent to Amendment.”

The purpose of the e-mail was to get investors’ approval to amend the terms of the SAFE (simple agreement for future equity), which was the financial vehicle into which investors invested.

For reference, a SAFE is a convertible instrument that is very useful in the context of crowdfunding raises for private companies. It allows a large number of investors to invest in the SAFE, and the SAFE will convert into equity at some future date, usually upon change of control or an IPO.

Ember Fund’s SAFE had a conversion threshold of a $20 million raise. That meant that the SAFE required a future raise of $20 million or more before converting investors into equity. A conversion threshold is normally set at a high level because most institutional investors (like private equity or venture capital) tend not to convert the SAFE into equity until there is a change of control or an IPO.

The reason for this is because it keeps the company’s capitalization table “clean.” The SAFE only represents one line item on the cap table, as opposed to something like 5,000 investor names from an average $5 million Reg CF.

However, some large investors occasionally prefer to convert the SAFE — and any other outstanding convertible instruments (like convertible debt) — and issue equity in each investor’s name sooner than a change of control.

And that’s what is happening with Ember Fund. Ember Fund is raising new capital from a strategic investor, which is great news for Ember Fund. And that strategic investor would like to convert the SAFE into preferred equity for all the prior Reg CF and Reg D investors.

The raise is less than $20 million, therefore the “Consent to Amendment” is for the purpose of lowering the $20 million threshold down to $1 million, so that Ember Fund can convert everyone’s pro rata ownership into preferred equity in Ember Fund.

My recommendation is that all investors should approve the amendment and support the issuance of preferred equity in Ember Fund. 

All SAFEs eventually convert for companies that grow and eventually exit through acquisition or IPO. This is completely normal. Only in this case, it is happening a bit sooner than is usual. In that way, it is good news.

As a reminder, Ember Fund is an innovative company in the blockchain industry that designed a sophisticated, yet simple, way for retail investors to invest in a portfolio of cryptocurrencies. 

Its technology enabled investors to invest in something like custom designed ETFs for cryptocurrencies, despite the fact that no cryptocurrency ETFs were permitted by the SEC. Ember Fund’s approach was brilliant, and it solved a major pain point in the industry for retail investors.

While the cryptowinter of 2022 and early 2023 was hard for all companies in the blockchain industry, including Ember Fund, they managed their capital well from the Reg CF raise and continued to innovate their platform with new services around cryptocurrency mining and gamification of cryptocurrencies.

Ember Fund has been focusing heavily on customer acquisition, and the latest numbers are looking very strong:

  • ~220,000 daily active users
  • ~450,000 monthly active users
  • ~1.8 million total users

These numbers are higher than back in 2022 and are on an excellent growth trajectory this year. Clearly this was attractive to the strategic investor.

After the financing round is complete, there will be more to share as the information will become public.

I’m very happy to see Ember Fund doing so well despite the difficulties during the cryptowinter. Ember Fund is still well-funded from the Reg CF and will be in an even stronger financial position after the strategic raise. I expect the company will become profitable within the next 12 months given the current growth of the business.

I’m optimistic that we’ll have a winner with Ember Fund as the next two or three years of growth play out for the company.

Ember Fund
Source: Ember Fund
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