Month: April 2023

Types of Securites

Types Of Securities
 
Why do I care about the different security types available to me? Now that you are finding your inner venture capitalist, its critical that you understand what you are investing in! Not all investments are the same. When making an investment on the platform it is essential to understand the type of security you are purchasing and its advantages or disadvantages.
 
Purchasing Equity Vs. Purchasing Debt
When learning about types of securities, it is best to understand the difference between purchasing equity and purchasing debt. Both of these securities are offered on the platform and it is critical to understand the difference.
Let’s start by exploring the basics of equity securities. When you purchase equity, you are becoming a partial owner of that investment. The number of shares you purchase, therefore, equates to a percentage of the company that you own! Therefore, as that company performs better and better, so does your investment. The potential upside of equity securities tends to be greater than that of debt securities since the potential growth of a company is technically unlimited. The inherent risk in investing in an equity security is that if the venture fails all together, the equity owners are often the last to be paid. You are, therefore, risking the loss of your entire investment on the belief that the company you invested in will perform well in the future.
Debt securities differ from equity securities in that companies are borrowing investor funds with the promise to repay the loan with a set rate of interest until the debt is repaid. Therefore, when purchasing a debt security, you are generally loaning your investment in exchange for a rate of interest set when the security is issued. The higher the risk of the debt security, the higher the rate of interest tends to be.
 
 
Equity Securities
We will now dive a bit deeper into equity securities to explain the various types of equity securities and what each entails. There are two types of equity securities: Common Stock and Preferred Stock. Each of these are explored in more detail below:
 
Common Stock
 
Common stock is the most common and simple type of equity securities. These investors are often given voting rights with their investment, however these voting rights are usually less influential than the voting rights provided to individuals holding preferred equity.
 
Preferred Stock
 
Preferred equity is typically issued to outside investors because it grants special rights and protection. This includes provisions such as anti-delusion rights. Additionally, increased influence on company decision-making is often included with these investments. Preferred equity holders are also able to claim their portion of a company’s assets prior to investors holding common stock.
 

LLC Units
 
LLC units represent ownership interests in a Limited Liability Company (LLC) and are a popular investment vehicle for entrepreneurs and investors alike. Similar to preferred stock, LLC units offer unique benefits and protections. Investors who hold LLC units often enjoy specific rights, such as a share in profits, voting power, and access to crucial company information. Moreover, LLC units provide a layer of limited liability protection, shielding investors’ personal assets from the company’s debts and liabilities. This versatile investment option allows individuals to participate in exciting ventures while contributing to the growth and success of the company they believe in.
 
The Bottom Line
 
Although there are many different types of securities, none are better than the rest. Each type of security could be best for a particular investor depending on the amount of risk they are willing to take on and additional rights/privileges they are looking to receive.
The main take away for all investors on the platform, is that crowdfunding involves many types of securities and it is important for you to read the subscription agreement for each issuer prior to investing. This will clearly spell out the offering including the securities you are purchasing and all special rights/privileges or voting power you will receive with your investment.

Understanding the Form-C

 

 
 
 

Form C – Everything You Need to Know

 
Form C is a critical step in the crowdfunding process for all companies raising under Regulation Crowdfunding. Form C is a disclosure document that is filed with the SEC prior to launching your campaign. Many founders are intimidated when they hear they must file with the SEC to raise; however, this process is really put into place to protect you and your investors. So, don’t be intimidated!
 

The Purpose of the Form C

Form C is a document that must be submitted to the SEC prior to launching your crowdfunding campaign under Regulation Crowdfunding. The document discloses the terms of your campaign and background into your company’s business. This form is required for many reasons, however three really stand out:
 

1. Provide Investors with Sufficient Information

One of the SEC and PicMii’s priorities is providing investors with sufficient information to make an educated decision to invest in an offering or not. This starts with Form C. Investors can find a wide range of information regarding a company and their offering on this form, which gives them everything they need to decide if they would like to participate in the campaign.
 

2. Protect Companies from Future Complaints

Form C protects companies from complaints alleging they did not provide enough information regarding their offering by standardizing what is required to be disclosed by companies raising under Regulation Crowdfunding. Without Form C, companies would be left guessing what information to provide to investors, which would lead to ambiguity in the space. Luckily, Form C solves this issue and provides companies with an outline of required information to be disclosed to all investors.
 

3. Document the Original Terms of Your Offering

One of the items disclosed within the Form C is the terms of your offering, which will also be outlined within your subscription agreement. This is especially important because it provides a basis from which any future updates must be disclosed. If any terms of the offering changes or a new executive officer announced, you must file an amendment to your Form C. This amendment is known as Form C/A and its purpose is to notify investors of any critical changes to the offering. In addition, you must file updates using Form C/U once your campaign reaches 50% and 100% of your funding goal.
 
 

What is Included In the Form C?

To put it simply, Form C includes a lot of questions. With the goal of providing as much information as possible to investors, it should be no surprise that the SEC requires a wide range of information be submitted. The following list includes the bulk of what is required in Form C:
 

1. General Offering Information

The first section of Form C focuses on general information regarding a companies offering. This section begins with the most simple information such as the name of your firm, how your company is incorporated, and your company address. It then requires some information regarding the intermediary you will be conducting your offering through (That’s Pocket Properties App!). We summarize this information below to make this section easy for you:CIK number of intermediary: TBA SEC file number of intermediary: TBA CRD number: TBA Lastly, this section includes specific information regarding your offering. This includes the type of security you are offering, target number of securities to be offered, price (or method for determining price), target offering amount, if over subscriptions will be accepted and, if so the maximum offering amount, and the deadline to hit the funding goal.
 

2. Financial Information

Form C also requires financial information from your company. This includes providing information on the following for the most recent fiscal year-end and the prior fiscal year-end: Total Assets, Cash and Cash Equivalents, Accounts Receivable, Short-term Debt, Long-term Debt, Revenues/Sales, Cost of Goods Sold, Taxes Paid, and Net Income.Companies must also provide financial statements for the two most recently completed fiscal years. These financial statements may be certified by the principal executive officer of your company if raising less than $107,000, however if raising more than $107,000 financial statements must be reviewed by a public accountant that is independent of the issuer and must include a signed review report.
 

3. Document the Original Terms of Your Offering

One of the items disclosed within the Form C is the terms of your offering, which will also be outlined within your subscription agreement. This is especially important because it provides a basis from which any future updates must be disclosed. If any terms of the offering changes or a new executive officer announced, you must file an amendment to your Form C. This amendment is known as Form C/A and its purpose is to notify investors of any critical changes to the offering. In addition, you must file updates using Form C/U once your campaign reaches 50% and 100% of your funding goal.

Reg CF SEC Guide

Regulation Crowdfunding header

Regulation Crowdfunding enables eligible companies to offer and sell securities through crowdfunding. The rules:

  • require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal
  • permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period
  • limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and
  • require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering

Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Regulation Crowdfunding offerings are subject to “bad actor” disqualification provisions.

Investor Limits

Investors Subject to Limits

The maximum amount you are permitted to invest if you are a non-accredited investor is determined by your net worth and yearly income.

If either your annual income or your net worth is less than $124,000, you may invest up to the greater of $2,500 or 5% of the higher of your annual income or net worth during any 12-month period.

You may invest up to 10% of your annual income or net worth, whichever is larger and does not exceed $124,000, in any 12-month period if both your net worth and annual income are equal to or more than $124,000.

Click here to determine how much you are allowed to invest.

Spouses are allowed to calculate their net worth and annual income jointly. This chart illustrates a few examples of the investment limits:

Investor Limits