RISKS ASSOCIATED WITH TECHNOLOGY COMPANIES: Many of the Issuers on our Platform will be in the technology industry. Investing in technology can be enormously profitable but is also very risky. Among other things:
- We know technology will continue to advance, but it is extremely difficult to predict in exactly what direction. Most new technologies never achieve commercial success.
- Competition in the technology industry is intense.
- A few companies – Google, Apple, Amazon, and Facebook – dominate the technology industry. When one of these companies announces that it intends to invest in a given technology, the announcement itself can destroy smaller companies.
- Technology changes rapidly. Nokia, now almost forgotten, was the powerhouse of telephone handset manufacturers not long ago. MySpace was a very promising company until Facebook took over the space. Within the last 12 months Zoom has lapped all its competition in the video conferencing space. One after another technology companies rise and fall. Thus, while a technology company might find quick success it can just as quickly become obsolete.
RISKS ASSOCIATED WITH HEALTHCARE COMPANIES: Many of the Issuers on our Platform will be in the healthcare industry. Although healthcare spending represents a significant portion of the American economy and is likely to grow as the population ages, investing in healthcare startups is very risky. Among other things, taking a new drug or therapy from idea to product takes a long time, is very expensive, and must surmount tall regulatory barriers. Often, a drug or therapy that seems promising at the outset, or even after extensive trials, ultimately fails.
RELIANCE ON MANAGEMENT: Most of the time, the securities you buy through our Platform will not give you the right to participate in the management of the company. Furthermore, if the founders or other key personnel of the issuer were to leave the company or become unable to work, the company (and your investment) could suffer substantially. Thus, you should not invest unless you are comfortable relying on the company’s management team. You will almost never have the right to oust management, no matter what you think of them.
INABILITY TO SELL YOUR INVESTMENT: The law prohibits you from selling your securities (except in certain very limited circumstances) for one year after you acquire them. Even after that one-year period, a host of Federal and State securities laws may limit or restrict your ability to sell your securities. Even if you are permitted to sell, you will likely have difficulty finding a buyer because there will be no established market. Given these factors, you should be prepared to hold your investment (your promissory note) for its full term.
THE ISSUER MIGHT NEED MORE CAPITAL: An issuer might need to raise more capital in the future to fund new product development, expand its operations, buy property and equipment, hire new team members, market its products and services, pay overhead and general administrative expenses, or a variety of other reasons. There is no assurance that additional capital will be available when needed, or that it will be available on terms that are not adverse to your interests as an investor. If the company is unable to obtain additional funding when needed, it could be forced to delay its business plan or even cease operations altogether.
CHANGES IN ECONOMIC CONDITIONS COULD HURT AN ISSUER’S BUSINESSES: Factors like global or national economic recessions, changes in interest rates, changes in credit markets, changes in capital market conditions, declining employment, decreases in real estate values, changes in tax policy, changes in political conditions, and wars and other crises, among other factors, hurt businesses generally and small, local businesses in particular. These events are generally unpredictable.
NO REGISTRATION UNDER SECURITIES LAWS: The securities sold on our Platform will not be registered with the SEC or the securities regulator of any State. Hence, neither the companies nor their securities will be subject to the same degree of regulation and scrutiny as if they were registered.
INCOMPLETE OFFERING INFORMATION: Title III does not require us or the issuer to provide you with all the information that would be required in some other kinds of securities offerings, such as a public offering of shares (for example, publicly-traded firms must generally provide investors with quarterly and annual financial statements that have been audited by an independent accounting firm). Although Title III does require extensive information, as described above, it is possible that you would make a different decision if you had more information.
LACK OF ONGOING INFORMATION: Companies that issue securities using Title III are required to provide some information to investors for at least one year following the offering. However, this information is far more limited than the information that would be required of a publicly-reporting company; and the company is allowed to stop providing annual information in certain circumstances.
BREACHES OF SECURITY: It is possible that our systems would be “hacked,” leading to the theft or disclosure of confidential information you have provided to us. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our vendors may be unable to anticipate these techniques or to implement adequate preventative measures.
UNINSURED LOSSES: A given company might not buy enough insurance to guard against the risks of its business, whether because it doesn’t know enough about insurance, because it can’t afford adequate insurance, or some combination of the two. Also, there are some kinds of risks that are simply impossible to insure against, at least at a reasonable cost. Therefore, any company could incur an uninsured loss that could damage its business.
THE OWNERS COULD BE BAD PEOPLE OR DO BAD THINGS: Before we allow a company on our Platform, we run certain background checks, including criminal background checks. However, there is no way to know for certain that someone is honest, and even generally honest people sometimes do dishonest things in desperate situations – for example, when their company is on the line, or they’re going through a divorce or other stressful life event. It is possible that the management of a company, or an employee, would steal from or otherwise cheat the company, and you.
UNRELIABLE FINANCIAL PROJECTIONS: Issuers might provide financial projections reflecting what they believe are reasonable assumptions concerning their businesses. However, the nature of business is that financial projections are rarely accurate, not because issuers intend to mislead investors but because so many things can change, and business is so difficult to predict.
LIMITS ON LIABILITY OF COMPANY MANAGEMENT: Many companies limit the liability of management, making it difficult or impossible for investors to sue managers successfully if they make mistakes or conduct themselves improperly (not all liability can be waived, however). You should assume that you will never be able to sue the management of any company, even if they make decisions you believe are plainly wrong.
CHANGES IN LAWS: Changes in laws or regulations, including but not limited to zoning laws, environmental laws, tax laws, consumer protection laws, securities laws, antitrust laws, and health care laws, could adversely affect many companies.
CONFLICTS OF INTEREST WITH US: In most cases, we make money as soon as you invest. You, on the other hand, make money only if your investments turn out to be successful. Or to put it a different way, at least in the short term it is in our interest to have you invest as much as possible in as many companies as possible, even if they all fail and you lose your money.
CONFLICT OF INTEREST WITH COMPANIES AND THEIR MANAGEMENT: In many ways your interests and the interests of company management will coincide: you both want the company to be as successful as possible. However, your interests might be in conflict in other important areas, including these:
- You might want the company to distribute money, while the company might prefer to reinvest it back into the business.
- You might wish the company would be sold so you can realize a profit from your investment, while management might want to continue operating the business.
- You would like to keep the compensation of managers low, while managers want to make as much as they can.
LACK OF PROFESSIONAL ADVICE: Because of the limits imposed by law, you might invest only a few hundred or a few thousand dollars in a given company. At that level of investment, you might decide that it’s not worthwhile for you to hire lawyers and other advisors to evaluate the company. Yet if you don’t hire advisors, you are in many respects “flying blind” and more likely to make a poor decision.
FUTURE INVESTORS MIGHT HAVE SUPERIOR RIGHTS: If the company needs more capital in the future and sells stock to raise that capital, the new investors might have rights superior to yours. For example, they might have the right to be paid before you are, to receive larger distributions, to have a greater voice in management, or otherwise.
OUR COMPANIES WILL NOT BE SUBJECT TO THE CORPORATE GOVERNANCE REQUIREMENTS OF THE NATIONAL SECURITIES EXCHANGES: Any company whose securities are listed on a national stock exchange (for example, the New York Stock Exchange) is subject to a number of rules about corporate governance that are intended to protect investors. For example, the major U.S. stock exchanges require listed companies to have an audit committee made up entirely of independent members of the board of directors (i.e., directors with no material outside relationships with the company or management), which is responsible for monitoring the company’s compliance with the law. Companies listed on our Platform typically will not be required to implement these and other stockholder protections.