SEC Investor Bulletin on Securities-Based Crowdfunding

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  • If either your net worth or your annual income is < than $100,000, then you can invest, in any 12 month period, 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 = or > than $100,000, then you can invest, in any 12 month period, up to 10% of annual income or net worth, whichever is lesser. In any case you can’t exceed $100,000 invested per year.
  • It’s a speculative investment, and you you should be able to afford to lose your entire investment.
  • It’s an illiquid investment, as you will be limited in your ability to resell your investment for the first year. You may have to locate an interested buyer in order to resell your crowdfunded investment.
  • There are cancellation restrictions, but you have up to 48 hours prior to the end of the offer period to cancel your investment commitment for any reason.
  • The valuation of private companies, is particularly difficult, and there is the the risk to overpay the % of equity that you receive.
  • A part of of your investment may be used as compensation of the company’s employees, including its management. You should review any disclosure regarding the company’s use of proceeds.
  • As it happens with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.
  • No early-stage investors, as for example angel investors and venture capital firms, can translate in lack of professional guidance.
  • The required financial disclosure is limited compared to public listed companies.
  • $100,000 or less — financial statements and specific line items from income tax returns (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.
  • 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.

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Freelance writer & digital strategist. European Commission expert, Fintech curator at Techstars Startup Digest, SXSW advisory board member.

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