Educational Material
Rule 302(b) of Securities and Exchange Commission (“SEC”), Regulation Crowdfunding, Securities Act of 1933 (Title III of the JOBS Act) (the “Securities Act”), requires that all potential investors who open an account and/or commit to purchasing securities must receive and acknowledge receiving certain educational information related to the posting of securities offerings by an intermediary including:
Please read this entire Investor Education Guide before registering or making any investment commitment. Recently adopted rules now permit companies to use crowdfunding to offer and sell their securities to the public. Anyone can invest in these types of securities. Crowdfunding is capital-raising activities by start-up and early-stage companies.
Use and investing here is an acknowledgment and agreement to having read this Investor Education Guide and to being solely responsible for determining individual suitability for an investment, or strategy, and acceptance of the risks associated with all investment decisions and choices including the risk of losing the entire amount invested. Investors must be able to afford to lose their entire investment.
Role of the intermediary. Mundial Financial Group, LLC (“Mundial”) operates this platform and authorizes other intermediaries to list, co-list, and syndicate private offerings on it (a.k.a. the intermediaries). Responsible intermediaries are identified on each listing on this platform and are SEC licensed and FINRA registered broker-dealers. Those intermediaries oversee all transactions between issuers and investors on this platform.
Note. There may be an ongoing relationship between issuers and intermediaries after investor investment.
The intermediaries do not have a special relationship or fiduciary duty to users or investors. Investors using this platform agree and acknowledge to being solely responsible for engaging in their own legal, accounting, and other due diligence reviews prior to investing.
Important Information about Crowdfunding!
Investing in small, especially start-up and early stage, companies is speculative and involves a high degree of risk. While targeted returns on the amount invested should reflect the perceived level of risk in the investment, such returns may never be realized and/or may not be adequate to compensate Investors for risks they have taken. Loss of an Investor’s entire investment is very possible and can easily occur. Even the timing of any payment of a return on an investment is highly speculative.
Unlike publicly listed companies that are valued by market-driven stock prices, the valuation of startup companies can be difficult to determine and is often subjective. There is a risk overpaying for the equity stake of each investment.
There may be additional classes of equity or derivatives with rights that are superior to the class of equity being sold through crowdfunding. Additionally, investments are subject to dilution, which is when early investors see a reduction in ownership percentage when new stock issues.
A regulation crowdfunding investment may need to be held for an indefinite period of time. Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities on a market, investors in crowdfunding may have to locate an interested buyer privately when they want to resell, even after the one-year restriction expires. There is not an established market for selling crowdfunded investments. There is also no assurance these types of securities will ever be publicly tradable.
An early-stage company may be able to provide only limited information about their plans and operations because they do not have fully developed operations or a long history necessary to provide more disclosure.
Publicly listed companies generally are required to disclose information about their performance at least on a quarterly and annual basis, and sometimes on a more frequent basis, about material events that affect them. In contrast, crowdfunding companies are only required to disclose their results of operations and financial statements annually. Therefore, investors may have only limited continuing disclosure about their investment.
Investment opportunities listed, the adequacy of the disclosures, and the Fairness of the terms of the investment opportunity have not been reviewed or approved by any state or federal agencies.
The Issuer likely will not have an internal control infrastructure and there cannot be anyassurance of no significant deficiencies or material weaknesses in the quality of their financial and disclosure controlsand procedures. Indeed, if it were necessary to implement such financial and disclosure controls and procedures, the cost to the issuer might even have a material adverse effect on its operations.
A portion of investments may fund compensation of the issuer’s employees, including its founders and management. Due to inexperience, management may not be able to execute on its business plan. Additionally, unless the issuer has agreed to a specific use of the proceeds from the offering, its management will usually have considerable discretion over how to use the capital raised from crowdfunding. Investors may not have any assurance the issuer will use proceeds appropriately. Potential investors must pay close attention to what the issuers state about how proceeds from its offering are to be used.
Because founders, directors and executive officers of issuers may be among its largest equity holders, they may be able to exert significant control or influence over business operations and affairs and may even have actual or potential interests that diverge from those of other investors. This may worsen as time goes on if the equity holdings of directors and executive officers increase upon vesting or other maturation of exercise rights under options or warrants, they may hold, or in the future be granted. In addition to holding or controlling board seats and offices, they may well have significant influence over and control of company actions requiring shareholder approval, separate from how its other stockholders, including investors, may vote in each offering.
Issuing companies and businesses may have serious risks specific to its industry or its business model. Demand for a product or service may be seasonal or be impacted by the overall economy. Small companies often depend heavily upon a single customer, supplier, or upon one or a small number of employees. It may have difficulty competing against larger companies who can negotiate for better prices from suppliers, produce goods and services on a larger scale and more economically, or take advantage of bigger marketing budgets.
Considering the relative ease with which early-stage companies can raise funds through crowdfunding, it may be the case that certain opportunities turn out to be money-losing fraudulent schemes. As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud. Even with the SEC’s thorough investigation of companies and their executive teams, there is a risk of fraudulent activity.
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 issuer’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.
Audited financial statements are not required for regulation crowdfunding offerings under $618,000.00. Issuers are not required to provide potential investors with annual audited financial statements or quarterly unaudited financial statements, except as explained above. The Issuer may not even have its financial statements audited, or even reviewed by outside auditors. Decision to make an investment will be based upon information issuers provide in their offering materials, which may not completely or even accurately represent financial their condition.
As explained above, investors may not be able to obtain the information they want regarding a particular issuer on a timely basis, or at all. It is possible that investors may not be aware of material adverse changes that have occurred to the issuer. An investor may not be able to get accurate information about an issuer’s current value at any given time.
Federal securities law requires securities sold in the United States to be registered with the U.S. Securities and Exchange Commission (“SEC”), unless the sale qualifies for an exemption. Securities offered here have not been registered under the Securities Act and are offered in reliance on the crowdfunding exemptive provisions of Section 4(a)(6) of the Securities Act [and/or Regulation S promulgated thereunder]. Securities sold here are restricted and not publicly traded and are therefore illiquid. No assurance can be given that any investment opportunity will continue to qualify under one or more of such exemptive provisions of the Securities Act due to, among other things, the adequacy of disclosure and the manner of distribution, the existence of similar offerings in the past or in the future, or a change of any securities law or regulation that has retroactive effect.
The list of risks highlighted above are not exhaustive. Investors must carefully review each issuer’s offering materials for a more complete set of risk factors specific to the investment. Investors should only invest an amount of money they can afford to lose without impacting their lifestyle.
Types of Securities Offered. The most common forms of securities an issuer can offer are equity or debt. The securities offered here include the following:
Common Stock: It conveys a portion of the ownership interest in the company to the holder of the security. Stockholders are usually entitled to receive dividends when and if declared, vote on corporate matters, and receive information about the company, including financial statements. This is the riskiest type of equity security since common stock is last in line to be paid if a company fails. Read our discussion of the risks of early stage investing and pay special attention to the fact that an investment will only make money if the company’s business succeeds. Common Stock is a long-term investment.
Preferred Stock: Stock has priority over common stock as to dividend payments and/or the distribution of the assets of the company. Preferred stock can have the characteristics of either common stock or debt securities. While preferred stock gets paid ahead of common stock, it will still only be repaid on liquidation if there is money left over after the company’s debts are paid. In certain circumstances (such as an initial public offering or a corporate takeover) the preferred stock might be convertible into common stock (the riskiest class of equity). You should review the terms of the preferred stock to know when that might happen.
Debt / Revenue Share: Securities in which the seller must repay the investor’s original investment amount at maturity plus interest. Debt securities are essentially loans to the company and the major risk they bear is that the company does not repay them, in which case they are likely to become worthless.
Convertible Note: This form of investment is popular with technology startups because it allows investors to initially lend money to the company and later receive shares if new professional investors decide to invest. The sort of convertible note most often offered may limit the circumstances in which any part of the loan is repaid, and the note may only convert when specified events (such as a preferred stock offering of a specific amount) happens in the future. You will not know how much your investment is “worth” until that time, which may never happen. You should treat this sort of convertible note as having the same risks as common stock.
Submission and Posting of Form C. Prior to launching a Title III equity crowdfunding campaign, each issuer is required to complete and submit a Form C to the SEC together with the required attachments. Companies that file a Form C are required to disclose certain information to the public which can be used to understand an investment and helps determine whether a particular investment is appropriate for a specific person. This includes general information about the issuer, its officers and directors, a description of the business, the planned use for the money raised from the offering, often called the use of proceeds, the target offering amount, the deadline for the offering, related-party transactions, risks specific to the issuer or its business, and financial information about the issuer.
Annual Filing Obligation of Issuers. Each issuer that successfully completes a Title III Regulation Crowdfunding securities offering is required to annually file with the SEC a Form C-AR and financial statements. This must be done no later than 120 days after the end of each issuer’s fiscal year covered by such filing. Each issuer must also post its Form C-AR and financial statements to its own website, and that link must be provided along with the date by which such report will be available on the issuer’s website. The Form C-AR contains updated disclosure substantially like the one provided in the issuer’s initial Form C, including information on the issuer’s size, location, principals and employees, business, plan of operations and the risks of investment in the issuer’s securities; however, offering-specific disclosure is not required to be disclosed in the Form C-AR. Investors should be aware that an issuer may no longer be required to continue its annual reporting obligations under any of the following circumstances:
The issuer is required to file reports under Section 13(a) or Section 15(d) of the Exchange Act.
The issuer has filed at least one annual report pursuant to Regulation Crowdfunding and has fewer than 300 holders of record and has total assets that do not exceed $10,000,000.
The issuer has filed at least three annual reports pursuant to Regulation Crowdfunding;
The issuer or another party repurchases all the securities issued in reliance on Section 4(a)(6) of the Securities Act, including any payment in full of debt securities or any complete redemption of redeemable securities; or the issuer liquidates or dissolves its business in accordance with state law.
If an Issuer ceases to make annual flings, investors may no longer have current financial information about the issuer available to them.
Investment Limitations. Because of risks involved with this type of investing, potential investors are limited in how much they can invest during any 12-month period. If you are a non-accredited investor, then the limitation on how much you can invest depends on your net worth and annual income.
If either potential investor annual income or net worth is less than $124,000, then during any 12-month period, they can invest up to the greater of either $2,500 or 5% of the greater of your annual income or net worth.
If both potential investor annual income and net worth are equal to or more than $124,000, then during any 12-month period, they can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $124,000.
Required Disclosures. The required type of financial disclosure depends on how much an issuer has already raised, and how much they intend to raise next.
$124,000 or less: If current offer plus previous raises amount to $124,000 or less, the issuer provides information from its tax returns (but not the tax returns themselves) certified by the principal executive officer. If financial statements are available, they must be provided, too, and again certified by the principal executive officer.
$124,000.01 to $618,000: If the current offering plus previous raises is between $100,000 and $618,000, financial statements are required and must be reviewed by a CPA. If audited financial statements are available, they must be provided.
$618,000.01 to $1.235 million: If current offer plus previous raises amount to $618,000.01 or more, the required financial statements must be audited by a CPA.
However, if the issuer has not previously sold securities under Regulation Crowdfunding, the financial statements will only be required to be reviewed by a CPA. Note: An audit provides a level of scrutiny by an accountant that is higher than a review. The required information is filed with the SEC and posted at the start of an offering by issuers on this platform and available to the public throughout the offering and SEC sites. It is available to the public on both websites throughout the offering period – which must be a minimum of 21 days.
Calculating Net Worth. Calculating net worth involves adding up all potential investor assets and subtracting all liabilities. The resulting sum is the potential investor’s net worth. For purposes of crowdfunding, the value of a potential investor’s primary residence is not included in a net worth calculation. The SEC’s Investor Bulletin Crowdfunding for Investors contains detailed and useful information about how to perform these calculations and examples here.
The Investment Processes. To invest, to commit to an investment, or to communicate on this platform, investors must open an account which entails providing certain personal and non-personal information to intermediaries, their affiliates and/or service providers, including information related to your income and net worth, and other investments. This information is used to verify you as a potential investor qualified to invest in investment opportunities posted. For further information on investment limitations, please see “Investment Limitations” above and for information on handling your personal information, please see our Privacy Policy.
Cancellations. As an investor, you will have up to 48 hours prior to a rolling close, or 48 hours prior to the offering deadline to change your mind and cancel your investment commitment for any reason. Change of Mind. If an investor does not cancel an investment commitment 48-hours prior to the offering deadline or a rolling close, the funds will be released to the issuer by the escrow agent. Following the close on funds, the investor will receive securities in exchange for their investment. If an investor does cancel an investment commitment before the 48-hour deadline, the intermediary will direct the return of any funds that have been committed. However, once the offering period is within 48 hours of ending, investors will not be able to cancel for any reason, even if they make their commitment during this period.
Restrictions on Resale. The securities offered are only suitable for potential investors who are familiar with and willing to accept the high risks associated with high-risk and illiquid private investments. Securities sold are restricted and not publicly traded and, therefore, cannot be sold unless registered with the SEC or an exemption from registration is available. Investors are generally restricted from reselling shares for a one-year period after they were issued, unless the shares are transferred,
Material Changes. If an issuer makes a material change to their offering terms or other information disclosed to potential investors, including a change to the offering deadline, investors will be given five business days to reconfirm their investment commitment. If investors don’t reconfirm, their investment will be canceled, and the funds will be returned.
Frequently Asked Questions
Can I Buy A Title III Regulation Crowdfunding Securities Directly From A Company? No. Companies may not offer crowdfunding investments directly to potential investors. They must use a crowdfunding intermediary, such as a FINRA Broker-Dealer like Mundial. Each must be registered with the Securities Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA).
Do investors pay any fees? Depending on the offering, an investor might pay a fee to the intermediary for any investment they make on the platform. This is subject to change at any time and is disclosed in the offering document of the company.
How Does Mundial Financial Group Make Money? Intermediaries make money by charging a commission on the amount of investments raised by issuers. The commission charged is a percentage of the capital raised, sometimes with equity in the issuing company also included in the compensation. This is subject to change at any time and is disclosed in the offering document of the company.
What Ways Can I Invest? During offerings by Mundial and other broker-dealers it agrees to co-list with, potential investors can invest in four ways: Individually; as a self-directed IRA; as a Trust, or as an entity like a corporation or limited liability company.
What Is My Proof of Ownership? Electronic records will be held with the issuing company’s transfer agent or cap table management service. Once investors purchase of equity is complete, they will receive a confirmation email with details about their investment which will include a Countersigned Subscription Agreement. As the offering is "Book Entry," this will operate as your proof of purchase.
What If The Issuing Company Reaches Its Target Investment Goal Early? Intermediaries will notify investors by email when the target offering amount has been met. If the issuing company hits its goal early, it can create a new target deadline at least 5 business days out. Investors will be notified of the new target deadline via email and may cancel up to 48 hours before the new deadline. Campaigns must be live for a minimum of 21 days regardless of their progress in achieving their funding target.
Additional Resources. Intermediaries are required by the SEC to post educational materials. While those educational materials are a great start to an investment education and understanding the risks of making crowdfunding investments, it is only the beginning. Be sure to investigate the issuing company and to participate in our online forum where investors can interact with other investors, weigh in on the pros and cons of an opportunity, and ask the issuing company questions.
For more information about raising capital for a company, feel free to continue exploring the help section or reach out to a Mundial team member to learn more about crowdfunding,
To see the adopting release and complete text of Regulation Crowdfunding Click Here.
To read the October 14, 2022 SEC Investor Bulletin Crowdfunding for Investors, Click Here.
For additional investor educational information, see the SEC’s website for individual investors Click Here.
To learn more about what happened during the first year of Regulation Crowdfunding, Click Here.