International Financial Corporation Securities Regulatory Commission: All You Need to Know about Crowdfunding from FINRA

Buying securities from early-stage companies can now be easily done beginning May 16, 2016 using the crowdfunding system. For investors who desire to choose this method for the first time, they must evaluate the risks involved in investing in these small companies, advises the Financial Industry Regulatory Authority (FINRA).

According to FINRA’s Senior VP Gerri Walsh, “Crowdfunding has produced great interests among investors; hence, the temptation to ride the wave on upcoming startups can be very strong. Nevertheless, the prospects of getting involved in new opportunities should impel investors to stop and look for the right answers to vital questions.” He added that “unregistered and emerging securities carry significant risk, and investors must be wary of such bright, new object and come up with educated and logical investment decisions”.

Based on the new provisions instituted on May 16, 2016, the general public can now invest in capital funding for start-up companies through crowdfunding. As defined, crowdfunding allows small businesses to utilize the Internet to raise funds for their capital through limited investments coming from a sizeable number of investors. FINRA’s announcement lays down the process by which equity crowdfunding works, together with the income and net-worth qualifications potential investors have to satisfy and the data provided by broker-dealers, issuers and funding portals.

FINRA’S announcement likewise provides help to investors for them to assess whether crowdfunding is appropriate for them. Here are some helpful tips:

1. Determine whether you can take the risk as well as the possible loss you may incur. There is no argument that startups and early-stage businesses can fail. Be prepared then to lose every dollar of your investment, when it does happen. Likewise, remember that your capability to resell your investment will be quite limited during the first year. Hence, you may have to let your investment stay the course for quite a while until new opportunities present themselves.

2. Keep updated and well aware of the financial and educational information, as well as other reports furnished by the issuer and crowdfunding brokers. Do not hesitate to seek answers for your immediate concerns regarding the investment, such as possible loss of your investment. Seek the opinions of unbiased professionals and other investors, for instance, an accountant who comprehends financial statements and who may not have any personal stake on the investment.

3. Consider the possibility of fraud. Safeguard your interests by studying how scammers can dupe you; so you can avoid them. Get in touch with investment professionals through BrokerCheck, and visit FINRA’s Funding Portal website on which went online on May 16, 2016.

4. For the most recent Investor Alerts and other vital investor information, subscribe to Investor News.

The International Financial Securities & Industry Regulatory Commission is recognized as the biggest independent securities regulation agency for all firms operating in the United States. FINRA commits to safeguard the interests of the investor as well as the integrity of the securities market through efficient regulation and appurtenant compliance and technology-based systems. FINRA covers substantially every aspect of the securities market — beginning with registration and education of all industry players to evaluation of securities companies, writing regulations, enforcement of such regulations and the federal securities laws, and the education of the investing public in general. Moreover, FINRA conducts investigations and other regulatory tasks for equities and options markets, including trade updates and other related industry services. Finally, FINRA serves as the main administrator for resolutions of disputes for investors and securities firms.

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