CFF Academy

Things to know about investing in crowdfunding offerings

Things to know about investing in crowdfunding offerings

Investment in personnel

An early-stage investment is also an investment in the founding entrepreneur(s) and/or management of the company. Being able to execute on the business plan is often an important factor determining whether the business will be 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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Diversification

Crowdfunding investing is highly speculative and every investment may result in a loss.

By investing small amounts across multiple companies, you can reduce your risk compared to a large investment in a single company.

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Risk

Investing in early-stage businesses is very risky. Most early-stage businesses fail. You should only invest an amount you can afford to lose completely without changing your lifestyle.

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Some of the key risks to know before you invest in startups

Some of the key risks to know before you invest in startups

Investing in startups and other private companies is highly speculative and could result in the complete loss of the investment. In addition, you will not be able to resell securities acquired through Crowdfunding for a period of one year, subject to certain limited exceptions, including sales back to the issuer, to accredited investors, to family members under certain circumstances (i.e. death or divorce). However, even after the restricted period, there is no guarantee that there will be a market for the securities. Crowdfunding investments are highly risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision. The following are some of the key risks applicable to our offerings:

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.

  1. You cannot sell your shares at any time as you would be able to do if you held shares in a publicly traded company. In fact, you are restricted from reselling your shares during the first year post closing of the offering, 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, divorce, or other similar circumstance;
  • to a trust controlled by you or a trust created for the benefit of a family member (defined as a child, sibling or parent of you or your spouse); or
  • are part of a later offering registered with the SEC.

There may be no market for the shares after the initial 12 month restricted period.

It is important that you only invest capital with the expectation of holding your investment for an indefinite period of time, and with the real risk of a total loss of your investment in mind. Only invest an amount you can afford to lose without changing your lifestyle

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Possibility of fraud

As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.

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Valuation and capitalization

Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult. You risk overpaying for the equity stake you receive. The class of equity being sold via a crowdfunding offering may have fewer rights than other equity classes issued by a company.

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Limited Transfer

You will not be able to sell, trade, or transfer ownership of your investment for the 12 months following the investment. Even after 12 months, you may not be able to find anyone to buy your share of a company.

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Learn About Investment Limitations

Learn About Investment Limitations

Prior to the JOBS Act, investing in startups and new ventures was only available to certain high net worth (accredited) investors. The JOBS Act introduced Crowdfunding which allows companies to raise up to $1 million in a 12-month period from both accredited and non-accredited investors. However, because of the risks associated with investing in startups and private companies, the SEC limits the amount an individual can invest in such offerings. The SEC’s Office of Investor Education and Advocacy published “Investor Bulletin: Crowdfunding for Investors” which offers the following guidance on your investment limitations.

How do I calculate my net worth?

Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth.

For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation. In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home. If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test.

Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well. The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.

While your individual circumstances will vary, the following table sets forth examples of calculations under the net worth test in order to determine crowdfunding investment limits
Investing in startups and other private companies is highly speculative and could result in the complete loss of the investment. In addition, you will not be able to resell securities acquired through Crowdfunding for a period of one year, subject to certain limited exceptions, including sales back to the issuer, to accredited investors, to family members under certain circumstances (i.e. death or divorce). However, even after the restricted period, there is no guarantee that there will be a market for the securities.

Equity Crowdfunding is the online offering of a startup or private company’s securities for investment. Title III of the Jumpstart Our Business Startups (JOBS) Act permits anyone to invest in these securities offerings up to certain investment limitations. These crowdfunding investments are made directly through the crowdfunding platforms, which are acting as a registered crowdfunding portal, and investors may participate in these offerings by investing directly through the crowdfunding platforms’ website. Investors who are interested in participating need to carefully consider whether investing in crowdfunding offerings is appropriate for them, meaning that each investor has the risk tolerance to invest in an offering that involves a high level of risk and that the investor can sustain the loss of some or all of his or her investment.

Risks of Investing. Investing in startups and other private companies is highly speculative and should only be done by investors who can bear the complete loss of their investment without any change in their lifestyle. Risks include, but are not limited to an issuer’s: (i) limited operating history, (ii) lack of liquidity or any market for the resale of your investment, (iii) possibility of fraud or misrepresentation, (iv) arbitrary valuation of the company, (v) limited shareholder rights and the possibility of dilution (meaning the reduction in the ownership percentage of a company caused by the issuance of more shares), (vi) inability to generate revenue or raise additional capital to fund operations, and (vii) inability to continue its relationship with the crowdfunding platforms or to publish annual reports where an investor obtains the most current financial information about an issuer. An issuer has ongoing reporting requirements to post an annual report no later than 120 days after the end of the fiscal year along with the financial statements of the issuer certified by the principal executive officer of the issuer to be true and complete in all material respects and a description of the financial condition of the issuer, and if an issuer has available financial statements that have either been reviewed or audited by a public accountant that is independent of the issuer, those financial statements must be provided to investors along with certification by the principal executive officer, and specific disclosures. In some instances, however, an issuer may fail in its obligation to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer.

Investment Limits. Regulation Crowdfunding limits the amount of money you can invest. If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth. If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.

Transfer Restrictions. You will not be able to resell securities acquired through Crowdfunding for a period of one year, subject to certain limited exceptions, including sales back to the issuer, to accredited investors, to family members under certain circumstances (i.e. death or divorce). However, even after the restricted period, there is no guarantee that there will be a market for the securities.

Cancellation Rights. You have the right to cancel your investment commitment in an offering at any time until 48 hours prior to the deadline identified in the issuer’s offering materials. After that, your investment will be final.

No Investment Advice or Recommendations. Gold Eagle does not provide any investment advice or recommendations. Our success probability of an offering on the portal is neither a recommendation, solicitation or endorsement of the offering by us. Any decision to invest shall be based solely upon your own evaluation and analysis of the offering and is made at your own risk. You are strongly advised to consult with your investment advisor before making any investment.

Limited Due Diligence. You are responsible for conducting legal, accounting and other due diligence review on the issuer’s and offerings posted on the Portal and to determine whether the investment is suitable for your investment needs.

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Can I make a crowdfunding investment?

Anyone can invest in a crowdfunding securities offering. Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period in these transactions. The limitation on how much you can invest depends on your net worth and annual income.

If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.

If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.

The following table provides a few examples:

Joint calculation. You can calculate your annual income or net worth by jointly including your spouse’s income or assets. It is not necessary that property be held jointly. However, if you do calculate your income or assets jointly with your spouse, each of your crowdfunding investments together cannot exceed the limit that would apply to an individual investor at that annual income or net worth level.
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Background

Background

Are there any requirements to be an investor?

Some of our network crowdfunding platforms are required by regulation to validate the accredited status of each investor. Whether through a third-party validation service or a letterhead notice by your attorney/accountant/banker, each investor must demonstration of accreditation status prior to investing. It is a prerequisite for investment to certify your accreditation on the offerings that are limited to accredited investors. Many of our network crowdfunding platforms also requires sophistication and suitability: you should be familiar with investing and understand how to review a deal for merits and risks.

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How will I know when new investment opportunities become available?

When new investment opportunities become available, crowdfundingfinder.com will send an email alert to its users. Further, you can receive updates by following crowdfundingfinder.com on Facebook, Twitter or LinkedIn.

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What is the real value of CrowdfundingFinder.com to investors?

Simple: ground-floor access to highly vetted deal flow that is typically unavailable to most retail investors in an environment that is reliable and confidential.

Additional Benefits:

  • Our community opinion in the form of our company success probability grade to support your own investment research efforts
  • Interactive search and benchmarking tools that allow you to compare deals and key metrics for crowdfunded investment opportunities across many platforms.
  • Online investment detail pages that simplifies the process of managing potential transactions.
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What is the typical investor profile?

There is no typical profile. Our accredited investors consist of family offices, venture capital firms, pension funds, individual accredited investors, other broker-dealers, registered investment providers, international groups, and other financial advisory organizations.

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How long does it take to complete the registration process?

Less than 10 minutes. Even with the use of third-party accreditation verification, registration can be completed same day.

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What is an accredited investor?

An accredited investor is an individual with $1 million in assets or income exceeding $200k for individuals and $300k for couples. That said, most of our investors are individuals who own at least $5 million in investable assets or an entity, such as a family office or an advisory firm, that oversees at least $25 million in discretionary assets. More information about qualified purchasers can be found on the Securities and Exchange Commission’s website at www.sec.gov.

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Invest

Invest

What should I be aware of when investing in a security?

Review the terms of each offering carefully, including rights associated with the offered securities. You may not have the same rights as other investors, including voting rights.

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What if the issuing company reaches its target investment goal early?

Our network crowdfunding portals will notify Investors by email when the target Offering amount has been met. If the issuing company hits its goal early, it can create a new target deadline at least five (5) business days out. Investors will be notified of the new target deadline via email and will then have the opportunity to cancel up to 48-hours before new deadline.

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Are there steps that can be taken to help mitigate the investment risks?

There are a number of steps an individual can take to help mitigate the risks involved in private equity investing. These include involving a qualified investment advisor in the investment planning process. Additionally, an individual investor should fully understand all the terms, conditions and risks detailed within the respective offering document as well as adequately research the industry in which the company operates, its competitors, its addressable market, prospects for success and perform extensive due diligence on the company.

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Are there any transfer restrictions once I receive my shares in the company?

Yes, Regulation Crowdfunding imposes transfer restrictions on the shares issues in crowdfund offerings. Unlike a publicly traded companies (i.e. listed on Nasdaq or NYSE) the shares are offered under Regulation Crowdfunding are private (not registered with the SEC) and restricted for a period of one year. This means that you are restricted or prohibited from reselling your shares for the first year, subject to certain exception such as transfers to:

  • 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.

Therefore, if you have any need for liquidity (ability to sell your securities and use the money for something else) in the near future, you should not invest in crowdfund offerings. You are strongly advised to discuss with your financial advisor.

We also want to note that even after the restrict period ends and you have the right to sell your shares, there is no guarantee that a market will exist and anyone will want to acquire your shares.

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What happens if an investment doesn’t reach its funding goal?

If the company’s offering does not meet its goal by the deadline, the money you committed will be returned to your account without deductions and you will be notified by email by our network crowdfunding portals.

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How much am I permitted to invest in offerings under Regulation Crowdfunding?

The SEC defines people who make over $200,000, or have a net worth over $1 million, as accredited investors. Accredited investors do not have investment limits if they participate in a Reg D or Reg A+ offering. For Reg A+ offerings (Tier II), unaccredited investors may invest up to 10% of the greater of their net worth or their annual income per offering.
Anyone can invest in a Title III crowdfunding securities offering. Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period. The limitation on how much you can invest depends on your net worth and annual income.

If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.

If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.

The following table provides a few examples:

Annual Income Net Worth Calculation 12-month Limit
$30,000 $105,000 greater of $2,000 of $30,000($1,500) $2,000
$150,000 $80,000 greater of $2,000 of $80,000($4,000) $4,000
$150,000 $100,000 10% of $100,000 ($10,000) $10,000
$200,000 $900,000 10% of $200,000 ($20,000) $20,000
$1.2 million $2 million 10% of $1.2 million ($120,000), subject to cap $100,000

 

Source: SEC Investor Bulletin: Crowdfunding (Updated: February 16, 2016)

Why is there a difference between Reg A+, Reg CF and Reg D investors?

The SEC has only recently allowed crowd investors to get access to private investments thanks to Reg A+ and Reg CF of the 2012 JOBS Act, which also allowed companies to solicit accredited investors publicly through changes to Reg D.

Before the Jumpstart Our Business companies (JOBS) Act of 2012, private companies who wanted to raise capital had to solicit investments via private channels. The JOBS Act quickly allowed privately held companies to solicit investments on public platforms like the internet.

But only accredited investors had access to those investments until the SEC formalized rules for a portions of the law called Title III (Reg CF) and Title IV (Reg A+). Title III & TItle IV allow people of any income to invest in companies.

 

Why are there investor limits?

 

Because Reg A+ and Reg CF allow early stage investing by non-accredited investors, the SEC put limits in place to protect the general public from investing more than they can afford to lose in early stage companies, due to the high risk and long horizon of the investment type.

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How can I make an investment?

Once you’ve selected a company in which to invest, the investment process is easy and straightforward. On the offering page of your selected company, click the button that says Invest  and simply follow the prompts to be sure you qualify.

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Should I speak to an investment advisor before investing?

We strongly recommend that you consult with your investment advisor before investing in any offerings on the website.

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Is it risky to invest in private companies, particularly start-up and early stage?

Yes, investing in early stage companies is highly speculative (very risky). Private securities and early stage companies have a high failure rate so you must be able to afford the complete loss of your investment without a change to your lifestyle. Early stage private placement investments are NOT bank deposits (and thus are NOT FDIC insured by the FDIC or by any other federal government agency), they are NOT guaranteed, and may lose ALL or some value.

Although the offering documents (Form C) are filed with the SEC, neither the SEC nor any other federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any due diligence or the information or materials provided through our network crowdfunding portals. Investors must be able to afford the loss of their entire investment without a change in their lifestyle.

Before investing, you are strongly advised to review the following to learn more about risks:

1) SEC – Investor Bulletin: Crowdfunding (Updated: February 16, 2016)
2) FINRA – For Investors: Education Is Key to Protection
3) Crowdfunding and the JOBS Act: What Investors Should Know

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When will I get a return on my investment?

Returns or distributions are determine by the issuing company. You should read the all the companies investor documentation carefully for an idea as to when the issuer is expecting a return. Further, Investments in our network crowdfunding platforms’ companies are not traded in a public market or exchange. It could take years for a financial distribution to occur, if at all’ It is best to plan not to have access to returns on your investment for an extended and indefinite period of time, or at all. If you choose to invest, you should invest only what you can afford to lose entirely.

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Practical Knowledge

Practical Knowledge

What are follow-on or new funding rounds?

It is anticipated that due to the startup phase that most companies will be in while presenting offerings on crowdfunding platforms, most companies that raise money on a crowdfunding platform will likely need to raise further funding in future. If an existing investor does not participate in follow-on or new funding rounds that occur at a time in the future then his and or her percentage ownership of the company will be reduced.

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What are some of the ways that an individual investor may conduct due diligence on a company prior to making a private equity investment?

It is important that an individual investor take the time to fully understand each investment he and or she may make via a crowdfunding platform. A company that offers securities through a crowdfunding platform must comply with specific disclosures and ongoing reporting requirements as mandated by the SEC.

The Form C that the Issuer files with the SEC as a requirement to offer securities using the crowdfunding exemption via a crowdfunding portal is available as a download in several places including the SEC Edgar data repository, the issuing company and the funding portal websites. The Form C filing will contain information on the issuing company. This mandated SEC filing includes required disclosures about the company, its business plan, financial condition, the securities being offered to investors and other essential information which the individual investor should carefully read, review and understand, including:

·      Company’s (issuer) name, legal status, mailing and email address

·      Names of Directors and Officers, as well as each person holding a beneficial interest of 20% of more of the shares of the issuer

·      A description of the business of the issuer and the anticipated business plan

·      A description of the financial condition of the issuer

·      A description of the stated purpose and intended use of proceeds from the offering

·      The target offering amount, the deadline to reach the target and regular updates about the progress of the offering

·      The price to the public of the securities or the method for determining the price

·      A description of the ownership and capital structure of the issuer, including:

  1. Terms of the securities being offered
  2. Each other class of securities
  3. Number of shares offered and outstanding
  4. Voting rights
  5. Any limitation to Voting Rights
  6. Summary of differences between offered securities and other classes

· The risks to purchasers

  1. Minority interest
  2. Corporate actions

·      Additional issuances

·      Share repurchases

·      Sale of issuer or assets

·      Transactions with related parties

  1. Name and ownership level of 20% beneficial owners
  2. Description on the restrictions on transfer of ownership
  3. How the securities being offered are being valued currently and may be valued in the future, including during subsequent corporate actions

·      Additional disclosures

  1. Registered Intermediary Name, SEC File Number and CRD#
  2. Compensation paid to the Registered Intermediary for conducting the offering, including the amount of any referral or other fees associated with the offering
  3. Certain legends in the offering statement, including the risks of investing in a crowdfunding transaction & required reporting

·      Current number of employees

·      Risk factors

·      Indebtedness

·      Prior exempt offerings, in any

·      Related party transactions, limited to those occurring since the beginning of the issuer’s last fiscal year, and only those that cumulatively exceed 5% of the aggregate capital raised during the preceding 12 months

·      Issuer to disclose the location on its website where investors can find the issuer’s Annual Report and the date by which the Report will be available

·      Disclosure to include any material information necessary in order to make the statements made, in light of circumstances under which they were made, not misleading

·      An Issuer must disclose whether it or any of its predecessors previously failed to comply with the ongoing reporting requirements of Regulation Crowdfunding

It is typically very difficult to forecast financial performance accurately for early stage private companies, and actual performance will often differ from the forecasts as disclosed in the company’s Form C filing. However, such forecasts can give a good indication of what the company perceives and represents its potential could be.

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Are there steps that can be taken to help mitigate the investment risks?

There are a number of steps an individual can take to help mitigate the risks involved in private equity investing. These include involving a qualified investment advisor in the investment planning process. Additionally, an individual investor should fully understand all the terms, conditions and risks detailed within the respective offering document as well as adequately research the industry in which the company operates, its competitors, its addressable market, prospects for success and perform extensive due diligence on the company.

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What are the distinctions of being a crowdfunding investor?

Being a crowdfunding investor is different than being a shareholder in a publicly listed company.  For example, an individual cannot sell their shares at any time, in contrast to investors holding shares in a publicly listed company. In fact, the individual crowdfunding investors are restricted from reselling their 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.

Another difference from being a shareholder of a publicly listed company is the amount of information you would receive about your investment. Publicly listed companies generally are required to disclose information about their performances at least on a quarterly and annual basis and on a regular basis about material events that affect the company. In contrast, crowdfunding companies are only required to disclose annually their results of operations and financial statements.

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Are there any transfer restrictions once I receive my shares in the company?

Yes, Regulation Crowdfunding imposes transfer restrictions on the shares issues in crowdfund offerings. Unlike a publicly traded companies (i.e. listed on Nasdaq or NYSE) the shares are offered under Regulation Crowdfunding are private (not registered with the SEC) and restricted for a period of one year. This means that you are restricted or prohibited from reselling your shares for the first year, subject to certain exception such as transfers to:

  • 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.

Therefore, if you have any need for liquidity (ability to sell your securities and use the money for something else) in the near future, you should not invest in crowdfund offerings. You are strongly advised to discuss with your financial advisor.

We also want to note that even after the restrict period ends and you have the right to sell your shares, there is no guarantee that a market will exist and anyone will want to acquire your shares.

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What happens if an investment doesn’t reach its funding goal?

If the company’s offering does not meet its goal by the deadline, the money you committed will be returned to your account without deductions and you will be notified by email by our network crowdfunding portals.

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Will I be informed of any material changes in the offering before closing?

In the event that company makes a material change to the offering terms or information disclosed to you, you will be notified by our network crowdfunding portals and normally be given five business days to reconfirm your investment commitment. If you fail to confirm your investment commitment with the five-business day period, your investment commitment will automatically be refunded. The responsibility to notify you on a material change in the offering is on our network crowdfunding portals and not Crowdfunding Finder.

So, you should pay careful attention emails and notices you received from our network crowdfunding portals as well as the emails and notices you received from Crowdfunding Finder.

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I changed my mind, can I update/cancel my investment?

Yes, you have up to 48 hours prior to the end of the offer period which is both posted on the website and included in the offering documents (Form C) to cancel your investment commitment. However, once the offering period is within 48 hours of ending, you will not be able to cancel for any reason even if you make your commitment during this period.

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Can I invest in more than one company under Reg CF?

You may invest in multiple companies as long as your total amount of investments does not exceed your annual investment limit.

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How do I calculate my net worth?

Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth. For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation. In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home. If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test. Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well. The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.

While your individual circumstances will vary, the following table sets forth examples of calculations under the net worth test in order to determine crowdfunding investment limits:

Jane Doe

John Smith

James Lee

Primary residence
(not included except for related liabilities below):
Home value

$300,00

$300,00

$300,00

Mortgage

200,00

200,00

330,00

Home equity line:
– more than 60 days old

20,000

– less than 60days old

10,00

Included assets:
Bank accounts

$20,000

$20,000

$20,000

401(k)/IRA accounts

100,000

100,000

100,000

Other investments

50,000

50,000

50,000

Car

20,000

20,000

20,000

Total included assets

$190,000

$190,000

$190,000

Included liabilities:
Student and car loans

$100,000

$100,000

$100,000

Other liabilities

20,000

20,000

20,000

Portion of mortgage underwater

30,000

Home equity line
(less than 60days old)

10,000

Total included liabilities

$120,000

$130,000

$150,000

Net worth

$70,000

$60,000

$40,000

 

Source: SEC Investor Bulletin: Crowdfunding (Updated: February 16, 2016)
Additional Resource: “Know Your Net Worth”

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How much am I permitted to invest in offerings under Regulation Crowdfunding?

The SEC defines people who make over $200,000, or have a net worth over $1 million, as accredited investors. Accredited investors do not have investment limits if they participate in a Reg D or Reg A+ offering. For Reg A+ offerings (Tier II), unaccredited investors may invest up to 10% of the greater of their net worth or their annual income per offering.
Anyone can invest in a Title III crowdfunding securities offering. Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period. The limitation on how much you can invest depends on your net worth and annual income.

If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.

If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.

The following table provides a few examples:

Annual Income Net Worth Calculation 12-month Limit
$30,000 $105,000 greater of $2,000 of $30,000($1,500) $2,000
$150,000 $80,000 greater of $2,000 of $80,000($4,000) $4,000
$150,000 $100,000 10% of $100,000 ($10,000) $10,000
$200,000 $900,000 10% of $200,000 ($20,000) $20,000
$1.2 million $2 million 10% of $1.2 million ($120,000), subject to cap $100,000

 

Source: SEC Investor Bulletin: Crowdfunding (Updated: February 16, 2016)

Why is there a difference between Reg A+, Reg CF and Reg D investors?

The SEC has only recently allowed crowd investors to get access to private investments thanks to Reg A+ and Reg CF of the 2012 JOBS Act, which also allowed companies to solicit accredited investors publicly through changes to Reg D.

Before the Jumpstart Our Business companies (JOBS) Act of 2012, private companies who wanted to raise capital had to solicit investments via private channels. The JOBS Act quickly allowed privately held companies to solicit investments on public platforms like the internet.

But only accredited investors had access to those investments until the SEC formalized rules for a portions of the law called Title III (Reg CF) and Title IV (Reg A+). Title III & TItle IV allow people of any income to invest in companies.

 

Why are there investor limits?

 

Because Reg A+ and Reg CF allow early stage investing by non-accredited investors, the SEC put limits in place to protect the general public from investing more than they can afford to lose in early stage companies, due to the high risk and long horizon of the investment type.

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How can I make an investment?

Once you’ve selected a company in which to invest, the investment process is easy and straightforward. On the offering page of your selected company, click the button that says Invest  and simply follow the prompts to be sure you qualify.

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What are the risks and rewards of investing in early-stage companies?

When you make an investment in an early-stage venture involving equity, you own a piece of that company until it makes an ‘exit’. Getting purchased by another company, selling shares on a public stock market (known as an initial public offering, or IPO), or bankruptcy are common exit scenarios.

That makes company investing one of the most potentially rewarding, and most risky, ways to invest your money. Some companies grow to become icons of an era, like Google, Facebook, or Apple. But for every superstar, there are numerous respectable but quiet exits, and many failures.

That’s why due diligence is so important. Investors need to be as well-educated and confident in their decisions as possible. Losing some or all of your investment is a very real possibility.

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How are our network crowdfunding portals different from traditional crowdfunding sites like Kickstarter and Indiegogo?

On our network crowdfunding portals, consumers purchase securities (including but not limited to equity, debt, and revenue participation notes) in privately held companies.

Crowdfunding sites like Kickstarter and Indiegogo allow people to donate money to campaigns in exchange for rewards. Once the backer receives the reward, the transaction is finished. The backer does not share in the company’s potential upside success and the company does not give up any portion of equity ownership to the crowd.

On our network crowdfunding portals, investors purchase securities in private companies. They do not receive rewards, they receive stock or another type of investment in private companies. If the company becomes successful, shareholders have the potential to receive a return on their initial investment.

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Should I speak to an investment advisor before investing?

We strongly recommend that you consult with your investment advisor before investing in any offerings on the website.

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Is it risky to invest in private companies, particularly start-up and early stage?

Yes, investing in early stage companies is highly speculative (very risky). Private securities and early stage companies have a high failure rate so you must be able to afford the complete loss of your investment without a change to your lifestyle. Early stage private placement investments are NOT bank deposits (and thus are NOT FDIC insured by the FDIC or by any other federal government agency), they are NOT guaranteed, and may lose ALL or some value.

Although the offering documents (Form C) are filed with the SEC, neither the SEC nor any other federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any due diligence or the information or materials provided through our network crowdfunding portals. Investors must be able to afford the loss of their entire investment without a change in their lifestyle.

Before investing, you are strongly advised to review the following to learn more about risks:

1) SEC – Investor Bulletin: Crowdfunding (Updated: February 16, 2016)
2) FINRA – For Investors: Education Is Key to Protection
3) Crowdfunding and the JOBS Act: What Investors Should Know

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Does crowdfundingfinder.com recommend any investments?

Crowdfundingfinder.com or any of their affiliates; do NOT provide investment advice, or recommendations. You must make your own decision as to whether an invest in any company or project listed is right for you.

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When will I get a return on my investment?

Returns or distributions are determine by the issuing company. You should read the all the companies investor documentation carefully for an idea as to when the issuer is expecting a return. Further, Investments in our network crowdfunding platforms’ companies are not traded in a public market or exchange. It could take years for a financial distribution to occur, if at all’ It is best to plan not to have access to returns on your investment for an extended and indefinite period of time, or at all. If you choose to invest, you should invest only what you can afford to lose entirely.

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I invested, what do I actually own?

When you invest in companies or projects, you’re buying equity interest in a real company setup. Investors in a company or project will own securities issued by the issuers only (the companies themselves). You are NOT buying equity interest in crowdfundingfinder.com or its network crowdfunding platforms.

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Is there a minimum investment amount?

The terms of each investment are clearly displayed on that project’s main webpage. Minimum investment amounts may vary from one company or project to another.

 

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Additional Information

Additional Information

What else can I know about title III offerings?
What do you need to know about Searching Investment via the Website?
What are the operational points to know before investing?
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