Crowdfunding is the collective effort of individuals coming together who network and pool their resources to fund or support a person, cause, or business.
The investing process:
- Read and review the company information as provided on CrowdFunding Portal internet website.
- Review crowd-vetting (if any).
- Read and attest to the educational materials located on the internet website.
- Conduct your own due-diligence.
- Read and acknowledge the risk disclosures.
- Attest you are capable of sustaining any losses without issue.
- Understand your obligations, options and risks.
- Read & sign the agreements.
- Send funds to escrow.
Debt crowdfunding (or loan) is when a group of people or businesses lend money to an individual or company with the understanding that the loan will be repaid with interest.
Equity crowdfunding is crowdfunding where the exchange is company equity, or ownership (a security), and not goods or services. The is much like how common stock is bought and sold on the stock market.
- loss of your investment;
- dividends ( for equity investments) may be minimal, if any;
- potential return may be years in the future;
- percentage of ownership may become diluted;
- stock resale limits, illiquid; and may not have voting rights.
Do Your Due Diligence! You, the investor , must learn as much as possible about the company that is asking for your money.Read the information, verify, and ask questions before you buy an investment product.
If you are eligible and would like to invest begin by completing your profile. Make sure you review the “How Much Can I Invest” in the General Account information tab. After completing your profile and if you are eligible to invest, there will be an "Invest Now" button. Indicate how much you'd like to invest, choose your payment method (we support bank accounts, wire transfers, and checks), and then sign the contract. You should hear back within a day or so, unless there are special circumstances. No money will leave your bank account until your application has been accepted and both parties have signed the contract. The size of your investment may be reduced to a lower amount or the investment may be rejected
Once your investment is accepted, you have 7 days to ensure payment is sent to an escrow account. Your investment is placed in an escrow account of a bank. If you do not provide payment in 7 days, your investment application will be automatically canceled. Your funds will be held in an escrow account until the fundraising target amount has been raised and the offering closes. Your funds are then transferred to the issuer and your investment is fully confirmed and executed. If the target amount is not reached in the time allotted, all your funds will be returned to you.
A funding portal or what is commonly referred to as an intermediary. In a Regulation CF crowdfunding offer, a funding portal or intermediary in a transaction involving the offer or sale of securities does not:
- Offer investment advice or recommendations;
- Solicit purchases, sales or offers to buy the securities displayed on its platform;
- Compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform; or
- Hold, manage, possess, or otherwise handle investor funds or securities.
There is no on-going relationship between Avonto and the Issuer, and any contact between investors and the Issuer would take place directly between the parties without any involvement by Avonto.
Under Regulation CF, an issuer that offered and sold securities must file with the SEC and post on the issuer's Web site an annual report along with the financial statements. The issuer will provide an annual report once a year with financial statements and a discussion of its business, no later than 120 days after the end of their fiscal year. Issuers are not obligated to file annual reports if they file for an IPO, are acquired by a purchaser, repurchase your investment, have fewer then 300 shareholders after 1 year, if they go bankrupt, or after 3 years if they have less then $10 million in assets. Some issuers who can easily raise funding from other sources may decide not to file annual reports, as the only penalty is they may not use Regulation CF again until they do so. If a company stops reporting, you may not continuously have current financial information about the company.
You are allowed to cancel your investment at any point and for any reason up to 48 hours before the offering deadline. You will receive a full refund. After the 48 hour offering deadline, you will not be able to cancel your investment.
This is even if you made your commitment during this 48 hour period.
As an investor, you can cancel your investment by:
- Log in to your Avonto account;
- Click your name in the top right hand corner;
- Click "Investments"; and
- Click the red "Cancel Investment" button on the right of the named investment.
Avonto will direct the escrow agent to return your proceeds.
YES — Issuers can cancel your investment for any reason. We will direct that all your funds are refunded.
Every Issuer using Regulation Crowdfunding is required to file a Form-C with the SEC, which is required to contain various disclosures, including:
- Name and legal status of the Issuer;
- Names of owners, directors and officers of the Issuer;
- A description of the business and intended use of the offering proceeds;
- Number of employees;
- Factors that make an investment in the Issuer speculative or risky and risks associated with the securities;
- The target offering amount, offering deadline, and whether the Issuer will accept commitments in excess of the target amount;
- A description of the investment process;
- A description of the present ownership and capital structure of the Issuer;
- Avonto’s compensation;
- Debt held by the Issuer;
- Other capital raising efforts conducted by the Issuer in the past three years;
- Amounts that went to the principals of the issuer from capital raising efforts;
- Financial statements; and
- A discussion of the Issuer’s financial condition.
Regulation & Governance
Commonly referred to as Regulation Crowdfunding, Regulation CF, Title III, or 4(a)(6) which allow companies to publically solicit and raise up to $1,070,000 in capital from the public through the Internet.
Individual investors are limited in the amounts they are allowed to invest in all Regulation Crowdfunding offerings over the course of a 12-month period:
If either of an investor’s annual income or net worth is less than $107,000, then the investor’s investment limit is the greater of:
$2,200 or 5 percent of the lesser of the investor’s annual income or net worth.
If both annual income and net worth are equal to or more than $107,000, then the investor’s limit is 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 investor through all Regulation Crowdfunding offerings may not exceed $107,000, regardless of the investor’s annual income or net worth.
Spouses are allowed to calculate their net worth and annual income jointly. This chart illustrates a few examples of the investment limits:
|InvestorAnnual Income||InvestorNet Worth||Calculation||Investment Limit|
|$30,000||$105,000||Greater of $2,200 or 5% of $30,000($1,500)||$2,200|
|150,000||$80,000||Greater of $2,200 or 5% of $80,000 ($4,000)||$4,000|
|$150,000||$100,000||10% of $100,000 ($10,000)||$10,000|
|$200,000||$900,000||10% of $200,000 ($20,000)||$20,000|
|$1,200,000||$2,000,000||10% of $1,200,000 ($120,000)||$107,000 (subject to $107,000 cap)|
Securities purchased in a crowdfunding transaction cannot be resold for a period of one year, unless the securities are transferred:
- to the issuer of the securities;
- to an “accredited investor”;
- as part of an offering registered with the Commission; or
- to a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance.
A security is a financial instrument that represents an ownership position in a corporation (stock), a creditor relationship with a corporation (bond), a debt instrument (note) or rights to ownership as represented by an option. The company or entity that issues the security is known as the issuer.
Regulation CF investment risks with securities include losing your entire investment, holding your investment for a period at minimum of 1 year with limited or no ability to resell after 1 year, rarity of dividends, no voting rights and potential dilution of the shares. Invest in an amount that you can afford to lose and will not impact your lifestyle. You must have the ability to bear a total loss of your investment without a change in your lifestyle.
Investing in early-stage and other businesses can be very rewarding, but it involves a number of risks and
If you choose to invest in businesses displayed on Avonto, you need to be aware of and accept five important considerations:
1. Loss of Capital
Most early-stage businesses and many other businesses fail, and if you invest in a business displayed on the platform, it is significantly more likely that you will lose all of your invested capital than you will see any return of capital or a profit. You should not invest more money in the types of businesses displayed on the platform than you can afford to lose without altering your standard of living.
Almost all investments you make in businesses displayed on the platform will be highly illiquid. It is very unlikely that there will be a secondary market for the shares of the business. This means that you are unlikely to be able to sell your shares until and unless the business floats on a stock exchange or is bought by another company; and, even if the business is bought by another company or floats, your investment may continue to be illiquid. Even for a successful business, a flotation or purchase is unlikely to occur for a number of years from the time you make your investment.
3. Rarity of Dividends
Businesses of the type displayed on the platform rarely pay dividends. This means that if you invest in a business through the platform, even if it is successful you are unlikely to see any return of capital or profit until you are able to sell your shares. Even for a successful business, this is unlikely to occur for a number of years from the time you make your investment.
Any investment you make in a business displayed on the platform is likely to be subject to dilution. This means that if the business raises additional capital at a later date, it will issue new shares to the new investors, and the percentage of the business that you own will decline. These new shares may also have certain preferential rights to dividends, sale proceeds and other matters, and the exercise of these rights may work to your disadvantage. Your investment may also be subject to dilution as a result of the grant of options (or similar rights to acquire shares) to employees of, service providers to or certain other contacts of, the business.
If you choose to invest in businesses of the type displayed on the platform, such investments should only be made as part of a well-diversified portfolio. This means that you should invest only a relatively small portion of your investible capital in such businesses, and the majority of your investible capital should be invested in safer, more liquid assets. It also means that you should spread your investment between multiple businesses rather than investing a larger amount in just a few.
6. Voting Rights, if any
It's rare for a Regulation CF investment to offer voting rights directly to smaller investors. The investor should assume your investment does not include voting rights unless specified otherwise.