It is very important to know and understand the inherent risks that are involved with equity crowdfunding, here are a few things to consider.
- You should only invest an amount you are comfortable losing, as many startup businesses fail.
- It is very difficult and even impossible in most cases to sell your shares when investing in private companies.
- Investments made in a Title III crowdfunding transaction can't be resold for a period of one year and there may be some other restrictions on the resale of the securities.
- You more than likely will not be able to cash in the shares you own in a private company for equal value of what you invested
- Purchasers of the securities offered may be entitled no voting rights and therefore they are not entitled to exert influence in the affairs of the
- Future equity financings may dilute their ownership percentage in the issuer. (The value of your investment may be diluted if more shares are issued and many start-up businesses undergo multiple rounds of funding)
- If you invest in shares in a business, there will be no guarantee that income in the form of dividends will be paid.
- Return on equity crowdfunded business may take many years to materialize. In many cases, equity may not ever accrue to the investor.
Securities issued in a transaction on the platform have limitations/restrictions on resales. Securities purchased through the site may not be transferred during the one year period beginning when the securities are purchased, unless the securities are transferred in the following manner:
a) Back to the issuers of the securities
b) To and accredited investor
c) As a part of an offering registered with the commission (SEC); or
d) To a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance.