Regulation Crowdfunding Education Center
Investing in startups involves considerable risk, including the possible loss of all or a significant portion of your investment. You should review all disclosed risk factors before making an investment decision. The following are some of the primary risks associated with investing in a startup under Title III:
- The company may be unable to complete an initial public offering of its securities, a merger, a buyout, or other liquidity event
- The company may be unable to expand and maintain market acceptance for its services or products
- The company may be unable to adapt to rapidly changing consumer preferences, technological advances, or market trends
- The company may be unable to achieve management’s projections for growth, to maintain or increase historical rates of growth, or to achieve growth based on past or current trends
- The company may be unable to develop, maintain, and expand successful marketing relationships, affiliations, joint ventures, and partnerships that may be needed to continue and accelerate growth and market penetration
- The company may be unable to manage rapid growth effectively
- The company’s business operations may be disrupted or costs increased as a result of the company’s customers complaining or making assertions about its services or products
- The company may experience technological problems, including potentially widespread outages and disruptions in Internet and mobile commerce
- The company may experience performance issues arising from infrastructure changes, human or software errors, website or third-party hosting disruptions, network disruptions, or capacity constraints due to a number of potential causes including technical failures, cyber attacks, security vulnerabilities, natural disasters, or fraud
- The company may be unable to adequately secure and protect intellectual property rights
- The company may be the subject of claims or litigation for infringement of intellectual property rights and other alleged violations of law
- Changes in laws and regulations may materially affect the company’s business
- The company may be unable to comply with all applicable local, U.S., and international laws and regulations, including rules regarding data security and privacy, resulting in increased costs and/or business disruption if the company becomes subject to claims and litigation for legal non-compliance
- Liability risks and labor costs and requirements may jeopardize the company’s business
- The company may be unable to secure additional capital necessary to support operations, to finance expansion, and/or to maintain competitive position
- The company may issue additional company equity securities that dilute the value of existing equity securities, and that dilute the voting power of existing investors
- The company may be unable to hire or retain key members of management and a qualified workforce
- The company may be unable to compete effectively against other businesses in its industry, some of which have longer operating histories, greater name recognition, and significantly greater financial, technical, marketing, distribution and other resources
- Competing companies may develop new services, products, and marketing and distribution channels or may establish business models or technologies that are disruptive to the company’s business
- Current and future competitors of the company may make strategic acquisitions or establish cooperative relationships among themselves or with others that may significantly increase their ability to meet the needs of existing and potential customers, putting the company at a disadvantage
- The business of the company may be jeopardized by stagnant economic conditions and by political, geopolitical, regulatory, financial, or other developments in the U.S. and globally, including incidents of war and terrorism, outbreaks and pandemics of serious communicable diseases, and natural and man-made disasters that are beyond the company’s control
- Because the valuation of a startup is subjective compared to the market-driven stock prices of public companies, you may overpay for the equity securities you purchase
- The class of equity securities you purchase may have fewer rights than other equity classes issued by the company
- The company may be able to provide only limited information on its operations and business plan due to the early stage of its development
- You may be restricted from selling or transferring your securities for 12 months following your purchase, and beyond that 12-month period, there may be no market for your securities should you wish to sell them at that time
- The company may not have relationships with established, professional early-stage investors such as angel investors, startup accelerators, and venture capital firms, or may not have these experienced individuals on their board of directors, leaving them without significant business mentorship, valuable resources and contacts, or general guidance
- The value of the company’s equity securities may experience significant and unexpected decline, including prior to, during, or after an initial public offering
There may be other risks that are specific to the company, its industry, or its business model, and there may be other risks not generally disclosed or known, in part because the company is privately held and does not provide risk disclosure in publicly available reports. Investors must understand that they are voluntarily assuming all of the risks of the investment, including any and all risks relating to the company.
It is impossible for anyone to know with any certainty which companies will be more successful than others, and an investment is subject to all of the risks inherent in any investment in a nascent business or industry with a number of different competitors.
Risks specific to “notes”:
There is no assurance that a purchaser of a promissory note will realize a return on its investment or that it will not lose its entire investment. Additionally, the issuer may not be able to generate enough cash flow to meet their interest payment obligations and may at anytime default.
There is no assurance that a purchaser of a convertible note will realize a return on its investment or that it will not lose its entire investment. Additionally, purchasers will not become equity holders until a future fundraising event, an IPO, or sale of the Company. Prior to conversion, convertible notes are susceptible to issuer default.
There is no assurance that a purchaser of a crowdsafe note will realize a return on its investment or that it will not lose its entire investment. Additionally, purchasers will not become equity holders until the company decides to convert the Securities into Securities or until an IPO or sale of the Company. Additionally, a crowdsafe note is not a debt instrument and investors in crowdsafe notes do not have preference in a liquidation. Further, crowdsafe notes do not accrue interest.