A Crowd SDA is an investment contract between lenders (investors) and companies looking to raise capital. Individuals make investments in exchange for the chance to earn a return in the form of cash interest payments.
The Crowd SDA was created by Republic and is a debt crowdfunding-specific version of a typical debt agreement, a financial instrument widely used by angels, VCs and other accredited investors investing in startups.
Under the terms of the Crowd SDA, investors lend money to the company in exchange for annual interest payments during the term of the agreement. The company has the right to accelerate repayment of interest and/or principal, subject to a minimum return multiple (e.g. 1.5x the principal). If the company makes all interest payments due under the Crowd SDA, the minimum return multiple will be satisfied.
RISK NOTE: payments are not guaranteed. The company may not have sufficient capital available to meet its payment obligations under the Crowd SDA, and the Crowd SDA is unsecured, meaning there is no collateral to which investors would have recourse in the event that the company is unable to meet its payment obligations.
Your return depends on your investment amount, the interest rate and the minimum return multiple amount detailed in the agreement. There is no guarantee of a return, as the company you lend to may not be able to service the debt and has not secured the debt with any assets.
Each company can customize its Crowd SDA, including or excluding certain provisions. Most include an interest rate and a minimum return multiple. If the Crowd SDA includes both an interest rate and minimum return multiple, the provision more favorable to the investor applies.
Key terms of the Crowd SDA include:
Annual Payment means an amount equal to or greater than the product of (i) the Loan Amount and (ii) the Interest Rate.
The Interest Rate is simple interest, paid annually, calculated based on the amount of your investment in the offering.
The Maturity Date is a future date, usually expressed as a number of of years from the Payment Start Date (as defined in the Crowd SDA). Upon the maturity date, the company must repay all outstanding interest and principal due under the Crowd SDA.
The Minimum Return Multiple is also determined by the company and defines the minimum total return which the investor is entitled to have received by the Maturity Date, expressed as a multiple of the principal amount.
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