INVESTOR EDUCATION

Important Update to Investors: The SEC temporary COVID 19-Relief program for Crowdfunding is in effect, which provides an option for companies issuing securities access to funds sooner. As an investor, it is important to understand how the changes impact both the commitment and cancellation period for investments. While you can access the SEC's statement here, we have also provided information below in relevant sections.

 

Not all companies raising capital take advantage of the Relief-program. A company raising under the temporary rules must disclose it on the SEC filing.

General Risks Related to Crowdfunding

                

Greater risk of failure: A business that has been capitalized through equity crowdfunding arguably runs a greater risk of failure than one that has been funded through venture capital or other traditional means of start-up financing. This is because a crowdfunded business may not have access to the experience and guidance of seasoned venture capitalists and other professionals who can steer a start-up through the challenges of its development phase. The success of a business cannot be assured merely by funding. Without an adequate business plan and support structure, even very promising ventures can fail.


Outright fraud: Online forums and social media are ideally suited for equity crowdfunding because they offer wide reach, scalability, convenience, and ease of recordkeeping. But these very features also make it easy for fraudsters to set up dubious ventures to attract equity crowdfunding from inexperienced investors. Investors who have not had the patience or wherewithal to conduct due diligence before investing may end up losing their entire investment to fraudulent crowdfunded schemes.

Returns may take years to materialize (or may never accrue): An investor who invests through equity crowdfunding has an expectation of some return on investment in the future. However, return on equity crowdfunded ventures may take many years to materialize. In many cases, equity may not ever accrue to the investor. Management may deviate from the business plan or could be out of its depth when trying to scale up the company. Over time, this may lead to capital erosion rather than wealth creation. In such cases, there may be an opportunity cost attached to equity crowdfunding because it ties up capital that could be deployed elsewhere to generate returns.


Security of the crowdfunding portal or platform: In recent years, hackers have displayed an alarming ability to break into seemingly impregnable data repositories of leading retailers and companies and steal credit card details and other valuable client information. A similar risk exists for crowdfunding portals and platforms, which are vulnerable to attacks from hackers and cyber-criminals. The prospect of possible credit card or identity theft from a crowdfunding portal is a risk that needs to be taken into consideration.


Lower-quality investments may be the norm: The question arises whether a company would only use equity crowdfunding as a last resort. For example, if a company is unable to attract funding from conventional start-up funding sources like angel investors and venture capitalists, perhaps then it would turn to equity crowdfunding. If that is indeed the case, then equity crowdfunded businesses are likely to be more mediocre investment opportunities with limited growth potential.

Reference: Investopedia, Invest through Equity Crowdfunding: Risks and Rewards (FB),  Elvis Picardo, Updated Jun 25, 2019

Company-Specific Risks

LACK OF PROFESSIONAL MANAGEMENT

Most small, local companies are managed by their founders. Very often the founder of a company is very strong in one area – for example, she might be an extremely effective salesperson or a terrific engineer – but lacks experience or skills in other critical areas. It might be a long time before (1) a startup can afford to hire professional management, and (2) the founder recognizes the need for professional management. In the meantime, the company and its investors could suffer.

LACK OF ACCESS TO CAPITAL

Smaller companies may have very limited access to capital. Frequently these companies cannot qualify for bank loans, leaving the company to live off the credit card debt incurred by the founder. 
 

LIMITED PRODUCTS AND SERVICES

Most small, local businesses sell only one or two products or services, making them vulnerable to changes in technology and/or customer preferences.

LACK OF ACCOUNTING CONTROLS

Larger companies typically have in place strict accounting controls to prevent theft and embezzlement. Smaller companies typically lack these controls, exposing themselves to additional risk.

LACK OF TECHNOLOGY

Most small, local businesses cannot afford the technology that a larger business would use to create efficiencies and cost savings.

CASH FLOW SHORTFALLS

Many smaller businesses experience frequent shortfalls in cash flow. If a business doesn’t have enough money to meet payroll, it might not make payments on obligations to its investors, either.

COMPETITION

Smaller companies are likely to be very vulnerable to competition, whether in the form of another small, local business opening across the street or a national chain.

Investor-specific Considerations

As an investor, you need to consider whether investing in a security offered and sold under Regulation Crowdfunding is appropriate for your personal situation; those considerations may include, but are not limited to:

- Financial considerations- can you afford this investment right now?

- Expertise - do you invest in a domain you understand?

- Degree of risk - is the potential risk involved in losing the investment in line with your risk tolerance?

Restrictions on Cancelling and Selling Your Securities Acquired in Crowdfunding

Cancellation

An investor may cancel an investment commitment for any reason until 48 hours prior to the deadline identified in the issuer's offering materials. During the 48 hours prior to such a deadline, an investment commitment may not be canceled except as provided below.

 

For Issuers relying on the SEC COVID 19 Relief Program the following rule applies:

For any reason for 48 hours from the time of the investor’s investment commitment (or such later period as the issuer may designate).  After such a 48-hour period, an investment commitment may not be canceled unless there is a material change to the offering.

Reselling

The law prohibits you from selling your securities for 12 months after you acquire them, (except in certain very limited circumstances). Securities purchased under Title III may not be transferred or sold during the first year of ownership unless they are transferred or sold:

  • Back to the issuing company

  • To an accredited investor, as defined by the SEC

  • As part of an offering registered by the SEC

  • To a member of your family, as defined by the SEC

  • To a trust you control or to a trust created for the benefit of a member of your family

  • As a result of your death or divorce

  • For the purposes of Title III, the SEC defines a “family member” as a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.

Further, beyond the initial 12-month period of restriction, there may be no market for the securities.

Investor Education Summary Document

Funders USA, inc. A Delaware Corporation

2901 W Coast Highway ste 200, Newport Beach, CA 92663

 

Headquarters Newport Beach

+1-844-864-8452

The information provided on this website pertaining to Funders USA Inc., a Delaware Corporation, "Company", its business assets, strategy, and operations is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this email should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. 

The Company is a member of FINRA and registered with the SEC to act as Funding Portal across all states in the US. Regulation Crowdfunding offerings (CF) are presented by Funders USA, inc. Regulation A and D offerings on this website are independently presented by Jumpstart Securities,llc.

The Company does not take into account nor does it provide any tax, legal or investment advice or opinion regarding the specific investment objectives or financial situation of any person. While the information on this website is believed to be accurate and reliable, Company and its agents, advisors, directors, officers, employees and shareholders make no guarantee or warranties, expressed or implied, as to the accuracy of such information and Company expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. Company reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof.

©2020 by USA Funders, a Delaware Corporation.