Crowdfunding investments are highly risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision. The following are some of the key risks applicable to Republic offerings:
Speculative. Investments in startups and early-stage ventures are speculative and these enterprises often fail. Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market. You should be prepared to lose your entire investment.
Illiquidity. Your ability to resell your investment in the first year will be restricted with narrow exceptions. You may need to hold your investment for an indefinite period of time. Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities, you may have to locate an interested private buyer when you do seek to resell your crowdfunded investment.
No voting rights. A Crowd Safe does not provide voting rights to its holder, unless and until the Crowd Safe or the note is converted into an equity stake. If and when you receive voting shares in a company, your voting rights will likely be diluted when the company raises additional funds.
Cancellation restrictions. Once you make an investment in a crowdfunding offering, you can cancel the investment at any time and for any reason up to 48 hours before the offering deadline.
Valuation and capitalization. Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult. You risk overpaying for the equity stake you receive. The class of equity being sold via a crowdfunding offering may have fewer rights than other equity classes issued by a company.
Limited disclosure. The company must disclose information about itself, its business plan, the offering, and its anticipated use of proceeds, among other things. An early-stage company may be able to provide only limited information about its business plan and operations because it does not have fully developed operations or a long history to provide more disclosure. The company is also only obligated to file information regarding its business annually, including financial statements.
Under certain circumstances the company may cease to publish annual reports and holders of the Crowd Safe will have no information rights.
Investment in personnel. An early-stage investment is also an investment in the founding entrepreneur(s) and/or management of the company. Being able to execute on the business plan is often an important factor determining whether the business will be viable and successful. You should also be aware that a portion of your investment may fund the compensation of the company’s employees, including its management. You should carefully review any disclosure regarding the company’s use of proceeds.
Possibility of fraud. As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.
Lack of professional guidance. Many successful companies partially attribute their early success to the guidance of professional early-stage investors (e.g. angel investors and venture capital firms). These investors often negotiate for seats on the company’s board of directors and play an important role through their resources, contacts and experience in assisting early-stage companies in executing on their business plans. An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.
Again, please be sure to review more extensive Risk Factors here.