Know Your Risks of Investing in Equity Crowdfunding Campaigns

Crowdfunding offers investors an opportunity to participate in an early-stage venture.  However, you should be aware that early-stage investments may involve very high risks and you should research thoroughly any offering before making an investment decision.  You should read and fully understand the information about the company and the risks that are disclosed to you before making any investment.

Speculative

Investments in startups and early-stage ventures are speculative and these enterprises often fail.  Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market.  You should be able to afford and be prepared to lose your entire investment.

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Cancellation Restrictions

Once you make an investment commitment for a crowdfunding offering, you will be committed to make that investment (unless you cancel your commitment within a specified period of time).  As detailed in the box below for Changing your mind, the ability to cancel your commitment is limited.

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Limited Disclosure

The company must disclose information about the company, its business plan, the offering, and its anticipated use of proceeds, among other things.  An early-stage company may be able to provide only limited information about its business plan and operations because it does not have fully developed operations or a long history to provide more disclosure.  The company is also only obligated to file information annually regarding its business, including financial statements.  A publicly listed company, in contrast, is required to file annual and quarterly reports and promptly disclose certain events—continuing disclosure that you can use to evaluate the status of your investment.  In contrast, you may have only limited continuing disclosure about your crowdfunding investment.

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Possibility of Fraud

In light of the relative ease with which early-stage companies can raise funds through crowdfunding, it may be the case that certain opportunities turn out to be money-losing fraudulent schemes.  As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.

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Illiquidity

You will be limited in your ability to resell your investment for the first year and may need to hold your investment for an indefinite period of time.  Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities on a market, you may have to locate an interested buyer when you do seek to resell your crowdfunded investment.

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Valuation and Capitalization

Your crowdfunding investment may purchase an equity stake in a startup.  Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult and you may risk overpaying for the equity stake you receive.  In addition, there may be additional classes of equity with rights that are superior to the class of equity being sold through crowdfunding.

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Investment in Personnel

An early-stage investment is also an investment in the entrepreneur or management of the company.  Being able to execute on the business plan is often an important factor in whether the business is viable and successful.  You should also be aware that a portion of your investment may fund the compensation of the company’s employees, including its management.  You should carefully review any disclosure regarding the company’s use of proceeds.

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Lack of Professional Guidance

Many successful companies partially attribute their early success to the guidance of professional early-stage investors (e.g., angel investors and venture capital firms).  These investors often negotiate for seats on the company’s board of directors and play an important role through their resources, contacts and experience in assisting early-stage companies in executing on their business plans.  An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.

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Investing in startups can be very rewarding, but investing in these companies involves a higher level of risks for the investor.

Equity-based crowdfunding refers to raising money from small public investors primarily through social media. In exchange for relatively small amounts of cash, investors get a proportionate slice of equity in a business venture. The SEC has issued an Investor Bulletin that is quite helpful to gaining an initial understanding of the provisions in Title III and Regulation Crowdfunding set by the SEC and FINRA: SEC Investor Bulletin: Crowdfunding (February 16, 2016)

Tiered financial disclosure. The minimum level of financial disclosure required by the company depends on the amount of money being raised or raised by the company in the prior 12 months:

  • $100,000 or less – financial statements and specific line items from income tax returns, both of which are certified by the principal executive officer of the company.
  • $100,000.01 to $500,000 – financial statements reviewed by an independent public accountant and the accountant’s review report.
  • $500,000.01 to $1 million – if first time crowdfunding, then financial statements reviewed by an independent public accountant and the accountant’s review report, otherwise financial statements audited by an independent public accountant and the accountant’s audit report.

An audit provides a level of scrutiny by the accountant that is higher than a review.

Review and acknowledgement.  Before you can make a crowdfunding investment, the broker-dealer or funding portal operating the crowdfunding platform you are using must ensure that you review educational materials about this type of investing.Enter your contact information and be updated when we launch our Funding Portal  In addition, you will have to positively affirm that you understand that you can lose all of your investment and that you can bear such a loss.  You will also have to demonstrate that you understand the risks of crowdfunded investing.

What’s different about being a crowdfunding investor?

Being a crowdfunding investor is different than being a shareholder in a publicly listed company.  For one thing, you cannot sell your shares at any time as you would be able to do if you held shares in a publicly listed company.  In fact, you are restricted from reselling your shares for the first year, unless the shares are transferred:

  • to the company that issued the securities;
  • to an accredited investor;
  • to a family member;
  • in connection with your death or divorce or other similar circumstance;
  • to a trust controlled by you or a trust created for the benefit of a family member;
  • as part of an offering registered with the SEC.

Enter your contact information for early access to our Equity Crowdfunding Portal!

Enter your contact information and be updated when we launch our Funding Portal. Invest in Startups with an Equity Crowdfunding Portal via Equity Raisers

Equity Raisers - Equity Crowdfunding Portal for Startup Investors

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Risks of Investing in Startups with an Equity Crowdfunding Portal
Investing in startups and early stage companies is very risky, highly speculative, and an investments should not be made by anyone who cannot afford to risk the entire investment. By using this Equity Funding Portal you understand the risks associated with investing in securities offered on the portal, including:
1. Complete loss of your investment (you may loose entire investment)
2. Lack of Liquidity (inability to sell to a third party)
3. Rarity of Dividends (many companies do not disperse monthly payments)
4. Possibility of Dilution (cap-tables may be expanded as more investors join the company)
5. Lack of Investment Diversification
6. Limited Public Information
7. No Redemption Rights
Yearly Investment Limit for Title III Crowdfunding Campaigns
Under the Title III of the JOBS Act, over a 12-month period, you will be limited to investing:
the greater of: $2,000 or 5 percent of the lesser of your annual income or net worth if either annual income or net worth is less than $100,000; or 10 percent of the lesser of your annual income or net worth, not to exceed an amount sold of $100,000, if both annual income and net worth are $100,000 or more.
No Investment Advice or Recommendations from this Equity Funding Portal
You should not interpret any content posted on the Equity Funding Portal as tax, legal, financial, or investment advice or a recommendation to invest in any offering posted on the Equity Funding Portal. Any decision to invest shall be based solely on your own evaluation and analysis of the risks involving a particular offering and is made at your own risk.
Due Diligence Review
You are responsible for conducting legal, accounting and other due diligence review on the issuer’s and offerings posted on the Equity Funding Portal and to determine whether the investment is suitable for your investment needs.

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