General Overview for Investors
Q: Can I make a crowdfunding investment?
A: Yes, almost anyone in the U.S. can invest in an equity crowdfunding offering. Given the inherit risks of investing, the SEC limits 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 $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. Pro tip: Check in advance with the funding portal to see if non-U.S. persons can invest. Not all portals permit offshore investments!
Q: How do I make the investment?
A: An investor can only invest in a crowdfunding offering through the online platform of a broker-dealer or funding portal.
Q: What legal rights are granted from Republic’s Crowd SAFEs and Microventures’s Crowd Notes?
A: Simple Agreement for Future Equity (SAFE) is a convertible security similar to an option or warrant that permits an investor to be issued capital stock of the company upon the occurrence of a future event. Distinguishable from a debt instrument, there is neither a maturity date nor interest rate. A SAFE may convert into equity during a future priced round of financing or upon a liquidity event. Crowd SAFEs do not typically extend voting, information, or inspection rights to investors.
Crowd Notes, unlike traditional convertible notes, do not automatically convert to equity ownership. Crowd Notes do not typically extend voting, information, or inspection rights to investors. However, investors often receive at least a 2x corporate transaction payment if an acquisition occurs prior to the Note's conversion.
Q: Can I transfer or sell the security after purchasing?
A: Generally, securities purchased in a Reg CF offering cannot be resold for a period of one year. There may be additional transferability restrictions imposed by the company thereafter.
Q: What if the issuer fails to meet the minimum target offering?
A: If the sum of the investment commitments does not equal or exceed the target offering amount by the offering deadline, no securities will be sold in the offering, investment commitments will be cancelled and committed funds will be returned.
Q: What are some of the risks to consider before making a crowdfunding investment?
A: Before investing, investors should be aware that early-stage investments involve a high degree of risk and thorough research is recommended before making an investment decision. Specifically, crowdfunding investments are highly speculative, may have limitations to one’s ability to resell the investment for the first year and cancellation restrictions. Further, there may be limited disclosures, a possibility of fraud, and lack of professional guidance.
Q: What are Repurchase Rights?
A: In the context of Reg CF, a repurchase right may mean the company’s option to buy back (i.e. repurchase) securities from purchasers.
Q: What are “Major Investor” Rights?
A: Investors in a Reg CF offering may be classified as “Major Investor” if their investment amount hits a certain threshold, such as $25,000. Often times, this designation provides investors with several rights that the other purchasers in the offering are not entitled to, including:
Informational rights: i.e. the right to receive information about the company’s operations and financials.
Inspection rights: i.e. the right to access and inspect the company’s books and records, facilities and personnel.
Preemptive rights: serves as a protective provision, which allows investors to maintain their level of ownership by participating in subsequent rounds without the threat of their equity being diluted.