1: Identify the purpose and scope of your Investment
Before you make an investment, consider your purpose for investing. What kind of returns you are expecting? What risks can you bear? Investing in private companies is very different from investing in companies that are traded on an exchange. You should discuss your options and the proposed investment with your financial, legal and tax advisor to make sure that investing in a crowdfunding offering is right for you. You must acknowledge that early stage investing is accompanied with considerable risk. Do not opt for equity crowdfunding if you are looking for quick returns or need liquidity in the near future.
2: Check your risk tolerance
Crowdfunding is traditionally a long term and a high-risk investment. If you are an investor who can’t afford to lose his/her entire investment, crowdfunding is not the right investment for you. Invest only that money which you can afford to lose which will not affect your lifestyle. Be mindful that monetization if your investment made through equity crowdfunding is highly unlikely and can take much longer than traditional investment products. You should perform significant due diligence before investing. Candidly, equity crowdfunding is not a “quick money” short-term investing strategy and you should never invest an amount of money that you cannot afford to lose.
3: Conduct due diligence
Investors should conduct their own due diligence. Researching a private company can be challenging. We suggest starting with the SEC’s EDGAR website where you can read information about the company and review the offering materials. These materials are also available on Equifund Ventures.
4: Acceptable payment methods
Investments on Equifund Ventures can be paid through the following: ACH transfer, mailing a check or issuing a bank wire. Do not send funds directly to Equifund Ventures or the issuer as they will not be accepted. All funds are to be sent and held by a third-party escrow agent pursuant to Reg A+ crowdfunding.
5: Investment vehicles
Investing in a crowdfunding offering can be made through an assortment of investing vehicles including but not limited to; an Individual, Corporation, LLC, a Trust, a Self-Directed IRA or 401(k).
Diversification is widely considered the most efficient risk management technique (don’t put all your eggs in one basket). A portfolio well diversified can reduce risk by allocating your investment amount among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that may perform differently over time. Equity crowdfunding is no different. Investors should always have a diversified portfolio with each asset class proficiently diversified in it.
Crowdfunding is a very volatile investment. One strategy an investor may consider is investing in several uncorrelated assets to increase the prospect of you achieving the maximum return possible at a lower level of risk. Even with diversification, an investment in private companies is highly speculative and could result in the complete loss of your investment. You should consult with your financial advisor to develop a portfolio that is designed with your financial goals in mind.
7: Research on product and people
As part of your due diligence and evaluation of a proposed investment, you should evaluate the experience, knowledge and track-record of the company’s management. Research the companies’ products and services. Make sure there’s a clear application or need in the market for these products and services.
8: Invest in industries you understand
There are advantages to investing in an industry for which you are familiar. It provides you the advantage of having a better understanding of the product and marketplace.
9: Review the offering
It is essential to review and scrutinize the offering materials presented to you by the issuers to comprehend fully what you are receiving in return of what you are investing.
10: We encourage you to ask questions to issuers
Equifund offers a communication tool where investors and issuers can connect and communicate. Each offering has a dedicated forum located on the offering home page. We encourage you to ask questions and raise any concerns to the company’s management. You should also review the other questions and answers in the forum as the issues and concerns raised by the Equifund Ventures community may provide you with some useful insights that will help you make a better-informed decision.
11: Know the tax implications
Please review with your tax consultant before making an investment so you understand any tax implications when investing in a crowdfund offering.
12: Cancellation of investment (Escrow period)
Once you have invested in an offering your money is placed in escrow. Those funds remain in escrow until the final 48-hours before the end of the offering period as listed in the Form 1-A. You may cancel your investment any time leading up to the 48-hour deadline. Once an offer reaches the last 48-hours, all the investments held in escrow are considered final and non-refundable.
13: Material changes in the offering
In the event an issuer makes a material change to the offering, you will be notified by Equifund and each investor will need to reconfirm their investment within 5 business days. If an investor fails to reconfirm their investment after reviewing the material change in the offering, his or her investment will be canceled.
14: Scope of annual reporting from the issuers
A company that has raised capital in a Reg A+ Tier 2 crowdfunding offering is required to provide an annual report (Form 1-K) to be filed within 120 days after the end of the fiscal year, semi-annual reports (Form 1-SA) to be filed within 90 days after the end of the semi-annual period, as well as current event updates (Form 1-U) to be filed within four business days of certain events. These reports are required to be filed on the SEC’s EDGAR website.
15: Issuers contain the ultimate right to accept or reject your investment
It is the issuer who holds the final rights to accept or reject a certain investment. Your investment is not final until it is accepted by the issuer.