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

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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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