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 EquityDoor, which is acting as a registered crowdfunding portal, and investors may participate in these offerings by investing directly through the EquityDoor 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.
Disclosure. The SEC requires that issuers provide certain information to investors through the EquityDoor portal, including, but not limited to:
- The issuer’s name and legal status, including its form of organization, jurisdiction in which it is organized and date of organization, its physical address and its website address. The issuer must also disclose the names of the directors and officers, including any persons occupying a similar status or performing a similar function, all positions and offices with the issuer held by such persons, the period of time in which such persons service in the positions or offices and their business experience during the past 3 years, including each person’s principal occupation and employment, including whether any officer is employed by another employer; and the name and principal business of any corporation or other organization in which such occupation and employment took place. In addition, the issuer must disclose the name of each person who is a beneficial owner of 20% or more of the issuer’s outstanding voting equity securities.
- Information about the issuer’s business and its business plan.
- The issuer must disclose enough information to provide investors with sufficient information to evaluate the investment. A description of the purpose of the offering and intended use of the offering proceeds. If the issuer did not have definitive plans for the proceeds, but instead had identified a range of possible uses, then the issuer would be required to identify and describe each probable use and factors affecting the selection of each particular use. If an issuer will accept proceeds in excess of the target offering amount, the issuer would be required to provide a separate, reasonably detailed description of the purpose and intended use of any excess proceeds with similar specificity.
- The issuer must disclose the target offering amount and the deadline to reach the target offering amount. If the issuer will accepts investments in excess of the target offering amount, and, if it would, we proposed to require the issuer to disclose, at the commencement of the offering, the maximum amount it would accept. The issuer also is required to disclose, at the commencement of the offering, how shares in oversubscribed offerings would be allocated. Issuers must also describe the process to cancel an investment commitment or to complete the transaction once the target amount is met, including a statement that:
- Investors may cancel an investment commitment until 48 hours prior to the deadline identified in the issuer’s offering materials;
- The intermediary will notify investors when the target offering amount has been met;
- If an issuer reaches the target offering amount prior to the deadline identified in its offering materials, it may close the offering early if it provides at least 5 business days’ notice prior to that new deadline (absent a material change that would require an extension of the offering and reconfirmation of the investment commitment); and
- If an investor does not cancel an investment commitment before the 48-hour period prior to the offering deadline, the funds will be released to the issuer upon closing of the offering and the investor will receive securities in exchange for his or her investment.
If an investor does not reconfirm his or her investment commitment after a material change is made to the offering the investor’s investment commitment will be cancelled and committed funds will be returned. In addition, the issuer must disclose that if the sum of the investment commitments does not equal or exceed the target offering amount at the time of the offering deadline, no securities will be sold in the offering, investment commitments will be cancelled and committed funds will be returned.
An issuer must provide a description of its ownership and capital structure, including the follow:
- the terms of the se the terms of the securities being offered and each other class of security of the issuer, including the number of securities being offered and those outstanding, whether or not such securities have voting rights, any limitations on such voting rights, how the terms of the securities being offered may be modified and a summary of the differences between such securities and each other class of security of the issuer, and how the rights of the securities being offered may be materially limited, diluted or qualified by the rights of any other class of security of the issuer;
- a description of how the exercise of the rights held by the principal shareholders of the issuer could affect the purchasers of the securities;
- the name and ownership level of persons who are beneficial owners owning more than 20 percent of the issuer’s securities calculated no earlier than 120 days prior to the date of the filing of the offering statement or report;
- how the securities being offered are being valued, and examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions;
- the risks to purchasers of the securities relating to minority ownership in the issuer and the risks associated with corporate actions including additional issuances of securities, issuer repurchases of securities, a sale of the issuer or of assets of the issuer or transactions with related parties; and
- a description of the restrictions on the transfer of the securities.
In addition, the issuer must disclosure of the number of securities being offered and those outstanding, whether or not such securities have voting rights, any limitations on such voting rights and a description of the restrictions on the transfer of the securities.
The issuer must disclose the name of the intermediary, its SEC file number and CRD number (if applicable); the compensation being paid to the intermediary for conducting the offering, including the amount of any referral or other fees associated with the offering and any financial interest in the issuers issued to the intermediary. The issuer must include in the offering statement specified legends about the risks of investing in a crowdfunding transaction is intended to hep investors understand the general risks of investing in a crowdfunding transaction. The issuer must also disclose the current number of its employees. The issuer must disclose risk factors associated with the issuer’s business and the offering. The issuer must provide a description of the material terms of any indebtedness of the issuer, including but not limited to, the amount, interest rate and maturity date of the indebtedness. The issuer must disclose about any other exempt offering that the issuer has conducted within the past 3 years, including the date of the offering, the offering exemption relied upon, the type of securities offered and the amount of securities sold and the use of proceeds. The issuer must disclose any related-party transactions for any person who is, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, the beneficial owner of 20 percent or more of the issuer’s outstanding voting equity securities. A transaction includes, but it is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transaction, arrangements or relationships that is in excess of 5% of the aggregate amount of capital raised by the issuer during the preceding 12-month period, inclusive of the amount the issuer seeks to raise in the current offering.
The issuer must disclose the location on its website where investors will be able to find the issuer’s annual report and the date by which such report will be available on its website. The issuer must include any material information necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. The issuer must also disclose whether any of its predecessors previously failed to comply with the ongoing reporting requirements of Regulation Crowdfunding. The issuer must also disclose a narrative discussion of its financial condition, including its liquidity, capital resources and historical results of operation. The issuer must provide a discussion of each period for which financial statements are provided and a discussion of any material changes or trends known to management in the financial condition and results of operations of the issuer subsequent to the period for which financial statements are provided.
Further, the issuer must provide the following financial information:
- If the issuer is offering $107,000 or less, then the issuer must provide to the SEC and to investors income tax returns and financial statements that are certified by the principal executive officer to be true and complete in all material respects. If, however, financial statements of the issuer are available that have either been reviewed or audited by a CPA that is independent of the issuer, the issuer must provide those financial statements instead and need not include the income tax returns.
- If the issuer is offering more than $107,000, but not more than $535,000, would be required to file with the SEC and provide to investors and the relevant intermediary financial statements reviewed by a public accountant that is independent of the issuer. If, however, financial statements of the issuer are available that have been audited by a CPA that is independent of the issuer, the issuer must provide those financial statements and need not include the reviewed financial statements.
- If the issuer is offering more than $535,000 but not more than $1,070,000 securities in reliance on Regulation Crowdfunding for the first time: financial statements reviewed by a CPA that is independent of the issuer. If, however, financial statements of the issuer are available that have been audited by a CPA that is independent of the issuer, the issuer must provide those financial statements instead and need not include the reviewed financial statements. For issuers that have previously sold securities in reliance on Regulation Crowdfunding: financial statements audited by a CPA that is independent of the issuer
The financial statements must be prepared in accordance with GAAP and must be prepared by a CPA. The financial statements must cover the shorter of the 2 most recently completed fiscal years or the period since inception of the business. During the first 120 days of the issuer’s fiscal year, an issuer would be able to conduct an offering using the financial statements for the fiscal year prior to the most recently completed fiscal year if the financial statements for the most recently completed fiscal year are not otherwise available or required to be filed. Reviewed financials and audited financials must be issued by either the AICPA or the PCAOB.
The financial statements must include balance sheets, income statements, cash flow statements, changes in stockholders’ equity and notes to the financial statements.
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 EquityDoor 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 statement must be provided to investors along with certification by the principal executive officer, and specific disclosures. Following completion of an offering conducted through EquityDoor, there may or may not be any ongoing relationship between the issuer and the portal. In addition, under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer. In some circumstances issuers are permitted by rule to cease filing annual reports, other issuers may completely fail in their obligation to do so.
Investment Limits. Anyone can invest in a Title III crowdfunding securities offering. However, due to the risks involved with securities-based crowdfunding, 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. Following are the inflation-adjusted investment limits. If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 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 $107,000, 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 $107,000.
An issuer must provide progress updates about the issuer’s progress toward meeting the target offering amount. However, if the portal does not provide such an update, the issuer would be required to file the interim progress updates. In addition, all issuers must file a Form C-U at the end of the offering to disclose the total amount of securities sold in the offering.
If an issuer amends its disclosure for any material change in the terms of the offering, a Form C-A must be provided to investors and the portal. Material changes require reconfirmation by investors of their investment commitments within 5 business days.
An issuer must file an annual report with the SEC no later than 120 days after the end of the fiscal year covered by the report and the issuer must post the annual report on its website. The report must include its financial statements and disclose information about the company and its financial condition, as required in connection with the offer and sale of the securities. An issuer may terminate the ongoing reporting obligation: (1) when the issuer has filed at least 1 annual report and has fewer than 300 holders of record; (2) when the issuer has filed at least 3 annual reports and has total assets that do not exceed $10 million; (3) when the issuer is required to file reports under Exchange Act Section 13(a) or 15(d); (4) when the issuer or another party purchases or repurchases all of the securities issued pursuant to Section 4(a)(6), including any payment in full of debt securities or any complete redemption of redeemable securities; or (5) the issuer liquidates or dissolves in accordance with state law.
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.
Incomplete Offering. If the issuer does not complete an offering (e.g., the target was not reached or the issuer decided to terminate the offering), EquityDoor shall, within five business days, (1) give or send to each investor who had made an investment commitment a notification disclosing the cancellation of the offering, the reason for cancellation, and the refund amount that the investor should expect to receive; (2) direct the refund of investor funds; and (3) prevent investors from making investment commitments with respect to that offering on EquityDoor’s platform.
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.
Material Change to Offering. If an issuer makes a material change to an offering, you will be required to reconfirm your investment commitment. If you do not reconfirm your investment commitment, your investment commitment will be cancelled and your fund returned to by the Escrow Agent.
No Investment Advice or Recommendations. EquityDoor does not provide any investment advice or recommendations. The posting 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.
Ongoing Issuer Relationships and Annual Reports. Following completion of an offering conducted through EquityDoor, there may or may not be any ongoing relationship between the issuer and the portal. In addition, under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer. In some circumstances issuers are permitted by rule to cease filing annual reports, other issuers may completely fail in their obligation to do so.
You can learn more about investing in crowdfunding from the SEC (https://www.sec.gov/oiea/investor-alerts- bulletins/ib_crowdfunding-.html), FINRA (https://www.finra.org/investors/alerts/crowdfunding-and-jobs-act- what-investors-should-know) or NASAA (http://www.nasaa.org/13676/small-business-advisory-crowdfunding/).
EquityDoor does not verify all of the information provided by companies listed on the Funding Portal and makes no assurance as to the completeness or accuracy of any such information. Additional information about companies raising money on the Funding Portal is also available on the SEC’s EDGAR Database (https://www.sec.gov/edgar/searchedgar/companysearch.html). Please review the Form C carefully for a full description of each company and its offering prior to making any investment commitments.