Nine points of education every crowd investor should know

  • 1. Regulation Crowdfunding Rules

    Crowdfunding is a relatively new and evolving method of using the Internet to raise capital to support businesses. An entity or individual raising funds through crowdfunding typically seeks small individual contributions from a large number of people. Individuals interested in the crowdfunding campaign – members of the “crowd” – may share information about the project, cause, idea or business with each other and use the information to decide whether to fund the campaign based on the collective “wisdom of the crowd.” The Jumpstart Our Business Startups Act (the “JOBS Act”), enacted on April 5, 2012, establishes a regulatory structure for startups and small businesses to raise capital through securities offerings using the Internet through crowdfunding.

    The Regulation CF was approved on October 30, 2015, allowing anyone in the US to invest in companies over the internet using regulated crowdfunding. Private companies were previously allowed to solicit only accredited investors - those with a net worth of at least $1 million, excluding the value of their homes, or annual income of more than $200,000. These rules went into effect on May 16, 2016.

    The JOBS Act is intended to help provide sponsors and small businesses with capital by making relatively low dollar offerings of securities and investments less costly. Congress included a number of provisions intended to protect investors who engage in these transactions, including investment limits, required disclosures by issuers, and a requirement to use regulated intermediaries.

    Offerings under the new legislation can be made either via existing broker-dealers, or via a new class of regulated registrants called “funding portals.” These portals have to provide enough information for investors to make an educated investment decision as well as to conduct background checks on issuers, their executives, and their officers to reduce fraud risk. They also must make issuer information available on their platforms for at least 21 days before securities can be sold, and enable conversations “among the crowd” about each offering in addition to having the option of a question-and-answer format.

    Equity crowdfunding triggers the application of the federal securities laws because it involves the offer and sale of a security. Under the Securities Act of 1933 (“Securities Act”), the offer and sale of securities is required to be registered unless an exemption is available. Registered offerings are generally not feasible for raising smaller amounts of capital, as is done in a typical crowdfunding transaction, because of the high costs of conducting a registered offering and the resulting ongoing reporting obligations under the Securities Exchange Act of 1934 (“Exchange Act”) that may arise as a result of the offering.

    Regulation Crowdfunding (Title III of the JOBS Act) (“Reg CF”) added new Securities Act Section 4(a)(6), which provides an exemption from the registration requirements of Securities Act Section 5 for certain crowdfunding transactions. To qualify for the exemption under Section 4(a)(6), crowdfunding transactions by an issuer must meet specified requirements, including the following:

    • the amount raised must not exceed $1,070,000 million in a 12-month period;
    • individual investments in all crowdfunding issuers in a 12-month period are limited to:
    • the greater of $2,200 or 5% of the lesser of annual income or net worth, if annual income or net worth of the investor is less than $100,000, or
    • 10% of annual income or net worth (not to exceed an amount sold of $100,000), if both annual income and net worth of the investor is $100,000 or more; 
    • all transactions must be conducted through an intermediary that either is registered as a broker-dealer or is registered as a new type of entity called a “funding portal”.


    In addition, Reg CF:

    • adds Securities Act Section 4A, which requires, among other things, that issuers and intermediaries that facilitate transactions between issuers and investors in reliance on Section 4(a)(6) provide certain information to investors and potential investors, take other actions and provide notices and other information to the Commission;
    • adds Exchange Act Section 3(h), which requires the Commission to adopt rules to exempt, either conditionally or unconditionally, “funding portals” from having to register as a broker-dealer pursuant to Exchange Act Section 15(a)(1);
    • mandates that the Commission establish disqualification provisions under which an issuer would not be able to avail itself of the Section 4(a)(6) exemption if the issuer or an intermediary was subject to a disqualifying event; and
    • adds Exchange Act Section 12(g)(6), which requires the Commission to adopt rules to exempt from the registration requirements of Section 12(g), either conditionally or unconditionally, securities acquired pursuant to an offering made in reliance on Section 4(a)(6).


    All investors are recommended to read SEC’s “Bulletin on Equity Crowdfunding for Investors” before making an investment decision. For more information, please check other Educational Materials.

  • 2. Investment Limits

    Reg CF establishes the following investor limitations:

    • Both accredited investors and non-accredited investors may invest in Reg CF crowdfunding offerings (subject to maximum  based on their income and net worth);
    • Over a 12-month period (on rolling basis), an individual can invest in the aggregate across all crowdfunding offerings up to:
    • If either their annual income or net worth is less than $100,000, than the greater of $2,000 or 5% of the lesser of their annual income or net worth.
    • If both their annual income and net worth are equal to or more than $100,000, investors are allowed to invest up to 10 percent of the lesser of their annual income or net worth.
    • During the 12-month period, the aggregate amount of securities sold to an individual investor through all crowdfunding offerings may not exceed $100,000.


    Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Holders of these securities would not count toward the threshold that requires a company to register its securities under Exchange Act Section 12(g) if the issuer is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year. In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a funding portal.

    To invest in securities offered under Regulation Crowdfunding on seedingu.com, simply click on the “Invest” button available on the listing page of the issuer in which you wish to invest. You will be asked to confirm that you have reviewed these educational materials and understand the risks of startup investing as disclosed on the profile page as well as in the SeedingU Educational Materials. Once you acknowledge the materials, you will be redirected to our investment flow to complete your investment. Upon confirming the investment, your investment amount will be funded and held in a secured escrow account at a third-party agent.

    Investors are allowed to cancel their investment at any time up to 48 hours before the closing date of the offering. In the event the target offering amount is reached prior to the offering deadline, all investors that have confirmed their investment by completing the investment flow on the SeedingU will be notified five business days prior to the new closing date, which is meant to give investors adequate time to cancel their investment.

    Furthermore, in the case that the Issuer has a material change in their offering (e.g., terms are updated, company operations have materially changed), all investors will receive a notice of that material change and will be required to reconfirm his or her investment commitment within five business days of the receipt of the notice. If the investor does not confirm their investment, the investment will be automatically canceled and the funds committed will be returned to the investor.

    SEC rules also require that Reg CF platforms provide channels for investors to discuss investment opportunities listed on the platform. Without the platform itself vetting projects, this public vetting process is critical. In this manner, the wisdom of the crowd guides investments on a Reg CF platform for non-accredited investors.

  • 3. Calculating your Net Worth
    Calculating your net worth FINRA: http://www.finra.org/investors/know-your-net-worth
    Net worth is the total assets minus total outside liabilities of an individual or a company. Put another way, net worth is any asset owned minus any debt owed. Calculating your net worth can be a useful tool to gauge your financial health and your financial progress over time.

    Step 1, you need to decide if you want to calculate net worth individually (you) or jointly (you and your spouse/partner).
    Step 2, you need to list all your assets. The list below will help you classify everything in just a few seconds:

    Assets

    Cash and cash equivalents
    Determine the amount of cash and cash equivalents that you have, including:

    • Certificates of deposit
    • Checking and savings accounts
    • Money market accounts
    • Physical cash
    • Treasury bills


    Investments

    Determine the current market value of your investments, including:

    • Annuities
    • Bonds
    • Life insurance cash value
    • Mutual funds
    • Pensions
    • Retirement plans – IRA, 401(k), 403(b), etc.
    • Stocks
    • Other investments


    Real and personal property

    Determine the current market value of your real and personal property. Real property includes land and anything that is permanently attached to the land, such as a house. Personal property is everything else.

    • Boats
    • Collectibles – antiques, art, coins, etc.
    • Household furnishings
    • Jewelry
    • Primary residence
    • Rental properties
    • Vacation or second home
    • Vehicles


    Step 3, add cash/cash equivalents, investments, and real/personal property. The sum represents your total assets.
    Step 4, you need to list all your liabilities. Here is the list to help you:

    Liabilities

    Secured liabilities
    Determine the amount of your secured liabilities, including:

    • Automobile loan(s)
    • Home equity loan
    • Margin loans
    • Mortgage
    • Rental real estate mortgage
    • Second mortgage
    • Vacation/second home mortgage


    Unsecured Labilities
    Determine the amount of your unsecured liabilities, including:

    • Credit card debt
    • Medical bills
    • Personal loans
    • Student loans
    • Taxes due
    • Other debt and outstanding bills


    Step 5, add secured liabilities and unsecured liabilities. The sum represents your total liabilities.
    Step 6, subtract your total liabilities from your total assets. The difference is your net worth.

    Example:
    Let’s consider a couple that has the following assets: primary residence valued at $250,000, an investment portfolio with a market value of $100,000 and automobiles and other assets valued at $25,000. The couple’s liabilities are an outstanding mortgage balance of $100,000 and a car loan of $10,000. The assets ($250,000 + $100,000 + $25,000) minus the liabilities ($100,000 + $10,000) means that the couple’s net worth is $265,000.

  • 4. How to Assess Investment Opportunity

    Assessing a startup investment is all about doing the proper due diligence to be able to make an informed investment decision. Each investor must conduct their own independent review of the offering documents and perform their own independent due diligence. Common factors that are reviewed by seasoned investors include:

    Product

    • Property or Asset Type
    • Property Location
    • Term of loan (if debt)
    • Management team backgrounds
    • Differentiation and defensibility
    • Business model
    • Market
    • Competitive landscape
    • Historical financial performance
    • Financial projections
    • Unit economics
    • Capitalization table
    • Use of proceeds
    • Legal


    Usually investors are looking for a scalable idea, committed and skillful team, good market positioning, potential for fast profitability, and momentum. If you choose to take the process to the next step, you need to know how to read the Terms of the offering.  

    Important Terms of Equity Investment include:

    • Maximum and Minimum Amount of investment the issuer is looking to raise
    • Valuation
    • Type of security offered
    • Voting rights
    • Anti-dilutive provisions and registration rights
    • Dividends
    • Liquidation preference
    • Conversion rights
    • Other offerings


    Important Terms of Debt Investment Include:

    • Maximum and Minimum Amount of Debt Seeking to be Raised
    • Collateral Valuation
    • Collateral Position (Senior of Junior)
    • Term of Debt
    • Interest Rate
    • Events of Default and Default Rights
    • Personal Guarantees
    • Cross Collateral
    • Other Offerings


    On SeedingU, the deal terms that are presented on the offering pages are final terms and are not generally negotiated or changed once a funding round has begun.

  • 5. Risks
    The information below sets out the risks that investors need to consider when making an investment in a company on SeedingU. Investing in startups is very risky, highly speculative, and investments should not be made by anyone who cannot afford to risk part of or the entire investment. In making comparisons with other investments, a prospective Investor should consider that the success of any investment depends upon many factors, including opportunity, general economic conditions, and the experience of management. There is no representation that all or any possible factors necessary for success are present in an issuer company. Each prospective Investor must conduct his or her own due-diligence and analysis in order to make an investment decision.

    StartUp Company; Limited Operating History. Accordingly, the issuer may be considered a startup or development phase business and, consequently, may have limited financial (profit and/or loss) history, operating history or revenues on which to base a prediction that the issuer will be successful. Such company must, therefore, be considered promotional, in its formative and development stage and a high risk, speculative investment. Potential Investors should be aware of the difficulties normally encountered by a new enterprise, many of which are beyond the issuer’s control. Investment in a start-up company is inherently subject to many risks, and investors should be prepared to withstand the complete loss of their investments. The issuer’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies using an untested marketing strategy. Such risks include, but are not limited to, possible inability to respond promptly to changes in a rapidly evolving and unpredictable business environment and the risk of inability to manage growth.

    Business Strategy. The issuer may modify and/or “pivot” its business plans and strategies as management pursues strategies that it believes to be in the best interest of the issuer. All information and materials provided to the Investors must be considered as illustrative examples of the planning efforts made to date, which may be subject to change in the future and about which no representations or warranties have been made by the issuer or anyone associated with it.

    Lack of Experience of Management as a Group.There is no assurance that management and key personnel have adequate skills to enable the issuer to earn income or make profits on its operations or investments. Investors should consider the credentials and experience of management and the effect thereof on the issuer’s prospects.

    Dependence on Management and Key Personnel. The business of the issuer will be greatly dependent upon the participation of its Officers and Directors and other key personnel. The issuer will need to hire additional management and key personnel as the issuer grows in order to properly manage the issuer. There are no assurances that the qualified personnel can be hired and, if hired, can be retained.

    Market Uncertainty.  Although the issuer believes that there will be a market for what it offers, there can be no assurance that a profitable market will exist or continue to exist or that it will grow. Potential Investors must consider that, even if markets exist or arise, there is no assurance that the issuer will be able to reach a profitable level of operations selling to such markets.

    Economic Downturns. Financial difficulties of the end users/customers to which the issuer expects to sell its services may adversely affect the issuer’s revenues, costs and collections. If the general economy is performing poorly, then the collectability of receivables may be adversely affected, causing an increase in aged receivables and/or a reduced collection rate. Company profits could be adversely affected if the issuer is forced to write off uncollected accounts. In addition, economic downturns could adversely affect the fiscal health of key customers/clients or impair their ability to continue to operate during a recession, which would decrease the issuer’s revenues unless the issuer is able to replace any lost business.

    Competition. In general, the market in which the issuer will compete is expected to be competitive. In general, the issuer’s potential competitors may have longer operating histories, greater brand recognition and significantly greater financial, marketing and other resources than the issuer and that their superiority to the issuer in these areas will likely continue into the future. Barriers to entry for new competitors of the issuer may be low, and current and new competitors may launch competitive services at a relatively low cost.

    Technological Change May Adversely Affect the issuer’s Business.The issuer’s ability to remain competitive may depend in part upon its ability to develop new and enhanced services and to introduce these services in a timely and cost-effective manner. In addition, service introductions or enhancements by the issuer’s competitors or the use of other technologies could cause a decline in revenue for the issuer’s existing services. There can be no assurances that the issuer shall be successful in selecting, developing, and marketing new services or in enhancing its existing services.

    Significant Growth May Place a Strain on Resources; Managing Growth. The anticipated growth could place a significant strain on the issuer’s management, and operational and financial resources. Effective management of the anticipated growth shall require expanding the issuer’s management and financial controls, hiring additional appropriate personnel as required, and developing additional expertise through experienced management personnel. However, there can be no assurances that these or other measures implemented by the issuer shall effectively increase the issuer’s capabilities to manage such anticipated growth or to do so in a timely and cost-effective manner.

    Limited Spreading of Risks; No Current Diversification of Services. The ability of the issuer to diversify or expand its activities is might be limited. Due to the comparatively small capitalization and the budget of the issuer and its reliance on a single service for success, there will be less spreading of risks than may occur in some other organizations.

    Intellectual Property Protection; No Protection of Proprietary Rights; Potential Costs of Enforcement. The issuer’s ability to compete effectively with other companies could depend, in part, on its ability to maintain the proprietary nature of its intellectual property. The issuer’s success may also depend, in part, on its ability to obtain and/or enforce intellectual property protection for these assets in the United States and other countries. The issuer has no patents or other formal intellectual property protections through trademark registrations, patents or otherwise, but may pursue such protection in the future. The defense and prosecution of intellectual property suits may be both costly and time consuming even if the outcome is favorable to the issuer.  An adverse outcome could subject the issuer to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the issuer to cease selling all or some of its products. There can be no assurances that confidentiality agreements entered into by the issuer’s employees and consultants, advisors and collaborators, if any, will provide meaningful protection for the issuer’s trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of such trade secrets, know-how or other proprietary information.

    Dependence on Offering Proceeds; Immediate Need for Capital to Continue in Business. The issuer has little, if any, working capital and, accordingly, has an immediate need for the proceeds in order to pursue its business activities.  Although the issuer believes that the anticipated net proceeds will enable the issuer to continue to pursue developing its business, its cost estimates for operation may be inaccurate and/or the net proceeds of the offering may provide insufficient working capital.

    Need to Raise Future Rounds of Additional Capital or Financing to Continue in Operation. In order to effectively execute its business plan and pursue its business activities, the issuer may need to raise additional capital in future investment rounds or other financings, which may include debt and/or equity and/or leasing transactions (“Future Rounds”) or otherwise obtain financing. If the issuer cannot or does not raise Future Rounds or obtain other financing needed, then it is likely that the issuer will be forced to discontinue its operations, and the issuer likely will fail. In such case, the Investors will likely lose their entire investments. There can be no assurance that Future Rounds or any additional financing or capital will be available, and the issuer cannot at this time accurately forecast the amount that will be needed, obtainable or obtained in Future Rounds. Even if the issuer raises Future Rounds and/or additional financing or capital is available through loans or other facilities, the issuer will depend substantially upon the availability of cash flow from operations to stay in business. There is no assurance that the issuer can generate cash flow when needed. In the event that the issuer’s operations do not generate necessary cash flow and/or the issuer cannot obtain additional funds if and when needed through other means, the issuer may be forced to limit, curtail or cease its activities with a consequent loss to Investors.

    Risk of System Failure; Absence of Redundant Facilities; Capacity Constraints. The issuer may rely on the internet and certain software to operate and manage its business and clients/customers. Accordingly, its business will be dependent on the efficient and uninterrupted operation of computer hardware systems and the internet.
    The issuer’s systems and operations will be vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events.

    No Voting Rights. Minority stake investors or investors using non-equity based funding mechanisms might not be entitled to any voting right and might not have any say in the issuer's executive decision-making process.

    The circumstances in which an investment commitment may be cancelled by the issuer: 

    • In the event than an issuer makes a material change to the terms of an offering or to the information provided by the issuer, investors need to re-confirm their investment in light of the new information. The confirmation must be received within five business days of the investor’s receipt of the notice of the material change or else the investment commitment must be cancelled.
    • If an issuer does not raise the target funds by the deadline it established, the investors get a notice of the cancellation of the investment commitment within five business days, direct the refund of investor funds, and prevent investors from committing any additional funds to the offering.
    • The Issuer may cancel the offering, in that case the investors must be notified and their investment commitments cancelled. 


    The circumstances in which an investment commitment may be cancelled by the intermediary:
    The intermediary can deny access to its platform if the intermediary has a reasonable basis for believing that an issuer, or any of its officers, directors (or any person occupying a similar status or performing a similar function), or any 20 Percent Beneficial Owner is subject to a disqualification under Rule 503 of Regulation Crowdfunding or the issuer or offering presents the potential for fraud or otherwise raises concerns regarding investor protection.

  • 6. Understanding Investment Returns

    If you are looking to start investing in private companies, you need to understand what happens after you have made an investment and how to manage your portfolio. Following completion of an offering conducted through the intermediary, there may or may not be any ongoing relationship between the issuer and intermediary.

    What Happens After You Invest?
    Depending on the range of factors such as the performance of the business, the terms of your investment, the terms of any subsequent rounds of financing, and the terms of any liquidity event the are a few possible outcomes for your investment which include:

    • Total loss of capital invested
    • Recovery of some principle but with some losses
    • Return of capital
    • Return of capital with a small profit
    • Significant investment return above the capital invested

    Some useful terms you want to know:

    Return on Investment.
    ROI - a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. Small business investments typically take at least five to ten years to show a return, so you should only invest capital that you are able to have remain invested for a long time frame.

    Loss Of Capital.
    The majority of startup investments result in the total or near total loss of the principal invested in the startup. You should monitor the companies that you have invested in and request updates so that you know when to consider an investment as a total loss. These losses may be tax deductible - you might need to consult with a tax advisor to learn more.

    Acquisition.
    The returns which investors receive in an acquisition generally depend upon the structure and terms of the acquisition agreements and they type of security which those investor’s hold. Typically, investors holding debt instruments in an acquired company will either be paid in full as part of the transaction, or the acquiring entity may elect to assume such debt instrument and continue to make payments in accordance with the terms of the debt instrument.      

    Secondary Sale.
    In certain circumstances you may be able to sell your securities to a third-party. These types of sales may be limited by the terms of your investment, transfer restrictions under the Securities laws, and/or a lack of willing purchasers. In the future, secondary markets may emerge to facilitate these transactions but at this time, due to the limited number of secondary markets and all investments in private companies should be considered as illiquid.

    Dilution of Equity.
    Usually companies raise multiple rounds of investment capital to fund their growth. If you are an early investor, then your percentage ownership of the issuer may be diluted when new investors are granted newly issued shares in the issuer. Sometimes dilution may be a good thing for your investment when new investors are investing at a higher price per share than your original investment and the additional capital is being used to grow the business. As a general rule, if the valuation of the next round is higher than the round that you invested in, then having your percentage ownership “diluted” is not a bad thing.

    Anti-Dilution Protections.
    If you have pro-rata rights or pre-emption rights, you are granted the right to purchase additional stock in the issuer through the current fundraising round to maintain your percentage ownership. If you do not have anti-dilution protection or you do not exercise your pro-rata rights, your percentage ownership in the issuer may be diluted in future rounds. You also should pay attention to the drag along and tag along rights when assessing a company for investment.

    Follow-on Rounds.
    Most sponsors raise multiple rounds of investment but part of the value of an early-stage investment may include the right to invest into future rounds in the same company. You may have a legal right to invest in follow-on rounds through “pro-rata” rights to maintain your percentage ownership or first right of refusal on a certain amount of stock in future rounds.

    Exit.
    Exit usually refers to a liquidity event, such as the sale of the asset or a refinance.

    Debt Investments
    Debt investments generate interest income which may or may not be paid on a regular basis.  Some loans require the regular payment of interest (and possibly a portion of the principal), which would be distributed to investors.  Other loans accumulate interest and require payment of that interest in a single large “balloon” payment at the end of the term.  At the end of the term, all accrued but unpaid interest, together with the remaining principal amount, and any fees or expenses incurred by the lender.

    Interest Rates
    Interest rates on the loans will vary, but could range between 5% and 15%. 

    Other Fees
    In addition to interest, investors may also participate in other fees, such as loan arrangement fees, late payment fees and penalties, default fees, loan modification fees and other loan fees.

    Default and Foreclosure
    In the event of a default on a loan, SeedingU would be required to foreclose upon the collateral.  In some states this requires the filing of a judicial action and a ruling by a court.  Other states allow foreclosure through non-judicial means.  Upon completion of the foreclosure, the collateral would be sold and the proceeds distributed to the investors.

    Bankruptcy
    In the event of a default, the borrower may seek bankruptcy protection to prevent or stall the foreclosure process.  This would result in additional time and expense, which would possibly reduce an investors returns.

  • 7. Managing Your Investment Portfolio

    When investing in businesses, most investors follow their own investment strategy that is formed based on their knowledge, experience and expertise as well as personal values. Here are some tips on setting an investment strategy:

    • Industry - which one do you believe has the potential for growth or to particular companies based on their management team, technology, or track record.
    • Stage of company
    • Market sector
    • Geography
    • Business models
    • Investment size
    • Type of investment (debt/equity)
    • Number of investments


    When investing, it is important to account for risk. Since the majority of startups fail and those that do provide a return to their investors may take five to ten years to do so, investors who invest in startups usually take the following precautions:

    • Asset allocation: Do not allocate more than 5-10% of your overall portfolio into alternative assets, including startup investment opportunities.
    • Diversification: Build a diversified portfolio of a minimum of 10-15 startup investments (diversification does not assure a profit nor does it necessarily hedge against or guarantee against investment loss).
    • Investment horizon: Do not invest any capital if you do not feel comfortable having it unavailable for a period of time.
    • General risk factors: Investors should also bear in mind the general risks inherent in the asset class.


    Becoming a strategic investor is a great opportunity to contribute more than just money, if the investors are willing to share their experience and expertise or opening up their network of contacts.

    Follow On investment strategy is worth considering in advance. If you plan to take advantage of any rights to invest in future investment rounds, this investment strategy is colloquially referred to as keeping “dry powder” to make follow on investments.

    It is important to monitor your portfolio. Companies that you have invested in should provide regular business updates (some of these updates may be a legal requirement of the investment documents): information about the progress of the issuer, information about developments in the industry and any business challenges. The updates may also include requests for advice, assistance or strategic introductions.

  • 8. Investing

    The five basic steps of the investing process in private companies are:

    1. Due diligence - you need to review key documents, research the issuer and team. Some things to pay attention to are idea scalability, market positioning, financial status of the issuer, revenue model, exit potential, etc.
    2. Legal paperwork - depending on the investment mechanism, you will have some legal paperwork such as verification of your identity and investor limits before making an investment into a private company.
    3. Investment agreement - to make an investment, you will normally sign an investment agreement that sets out the terms of the investment. In some transactions, the documents will be held in escrow until certain conditions are met.
    4. Funds transfer - your funds may be transferred into an escrow account held by a third-party for safe-keeping until the funds are released to the issuer once certain conditions are met. Once the conditions of the escrow are met the documents and/or funds will be released to the issuer.

    Investing On SeedingU
    SeedingU is an online funding platform which facilitates revenue sharing investments under the regulated Crowdfunding rules. The main steps in the investment process on SeedingU include:

    Click “Invest”.
    After you have completed your due diligence of the issuer and the offering, click the “invest” button on the issuer’s profile page. This will start the investment process during which you will choose the amount of investment and provide additional information. We facilitate the signing of the agreement between you and the issuer. Your information will then be pre-populated into the issuer’s offering documents, which you can sign electronically through the platform.

    Funds
    After signing the agreement, your funds will automatically be transferred and placed into an escrow account. The funds will remain in escrow until they are released to the issuer that you are investing in or returned back to you.

    Confirmation
    Once the fundraising round closes, you will receive confirmation of success and counter-signed legal agreements. In the case of an unsuccessful round or if you canceled investment, the proposed transaction will be cancelled and the escrow agent will return the funds from the escrow back into your bank account.

    In order to protect investors, companies are required to reach a minimum funding target to have a successful fundraising campaign. That means that investments are not finalized until the issuer raises enough money to meet its funding target and completes all other closing conditions. Once the funding target has been met, the money is released to the issuer and investors will receive the confirmation of their investment in the applicable security. If the minimum funding target is not met, subscription amounts are returned to investors by the escrow agent. SeedingU does not receive or take custody of investor funds at any point during the investment process.

    SeedingU reviews the following information about companies listed on its platform:

    • Legal and Confirmatory Due Diligence
    • Organization of the issuer
    • Corporate structure and ownership
    • Disclosure information and terms of the offering
    • Risks
    • Investment Structure
    • Historical financials
    • Financial projections


    Note: SeedingU is not a broker dealer and is not providing advice. Investors are expected to perform their own due diligence of each opportunity.

  • 9. General Considerations

    Notwithstanding the foregoing, these investments are illiquid, risky and speculative and you may lose your entire investment. The foregoing verification process does not guarantee that any company will be successful or that you will receive a positive return on your investment. Each company review is tailored to the nature of the issuer, so the mentioned review process is not the exact process for every issuer. Completing the verification process does not guarantee that the issuer has no outstanding issues or that problems will not arise in the future. While the foregoing process is designed to identify material issues, there is no guarantee that there will not be errors, omissions, or oversights in the process.

    For additional information about investing please consult www.sec.gov about investing basics.