The kinds of securities we will offer
We could offer any kind of Security on the Platform, including:
Equity Securities. When you buy an “equity security,” like the common stock of a corporation, you become an owner of the company. The value of your interest fluctuates with the fortunes of the company; if the company does well the value of your interest goes up, while if it does poorly the value goes down, possibly all the way to zero. As an owner, you generally have the right to share in any profit distributions made by the company, and you also share in the appreciation in the value of the company. Owning an equity security in a company is like owning a house, both the good part and the bad part. When a company dissolves, the owners of the equity securities are paid last, after all the creditors.
“Preferred” Equity Securities. In some cases, a company will offer a “preferred equity security,” like the preferred stock of a corporation. Typically, the holders of the preferred equity security have a right to receive distributions before the holders of the regular equity securities. For example, the holders of a preferred stock might have the right to receive a 4% dividend before dividends are paid to the holders of common stock. But preferred equity is still equity. The holders of preferred equity are paid after creditors.
Debt Securities. When you buy a “debt security,” like a promissory note or bond, you do not become an owner of the company. You are, instead, a creditor. As long as the company has enough money to repay your loan, plus any interest you’ve been promised, the value of your security stays the same; the fluctuations of the fortunes of the company don’t affect you, unless the fortunes go way down. On the other hand, you don’t share in the appreciate if things go well. If the company increases in value 100-fold, you just have the right to get your money back, plus interest.
Hybrid Securities. Some securities, which we call “hybrid securities,” have characteristics of both equity securities and debt securities, like a cross between a dog and a horse.
Convertible Securities. Some securities, which we call “convertible securities,” start out as one kind of security but can be changed – converted – into a different kind of security. For example, a company might issue a debt security that can be converted by the holder into common stock at some specified time. Sometimes the conversion is triggered at the option of the holder, sometimes at the option of the company, and other times upon the occurrence of a specified event.
Callable Securities. Any kind of security can also be a “callable security,” meaning it can be “called,” or redeemed (bought back) by the company.
Other Kinds of Securities. The possible kinds of securities are limited only by the imaginations of financial needs of companies, investors, and lawyers.
When you review the opportunities at the Site, each opportunity will explain what kind of Security is being offered.
Limits on how much you may invest
Title III limits how much you can invest every year – not only in any one company, or through any one Funding Portal, but also in all companies through all Funding Portals. These limits apply only to your investments under Title III, however.
Specifically, the maximum amount you can invest in all Title III offerings during any period of 12 months is:
- If your annual income or net worth is less than $124,000, you may invest the greater of:
- $2,500; or
- 5% of the greater of your annual income or net worth.
- If your annual income and net worth are both at least $124,000, you can invest the lesser of:
- $124,000; or
- 10% of the greater of your annual income or net worth.
These limits apply to everyone, except Accredited Investors. Accredited Investors may invest as much as they want, and as often as they want.
You and your spouse may combine your incomes and assets for purposes of determining how much you may invest. If you do so, and you are investing as non-Accredited Investors, you will be treated as a single investor for purposes of determining how much either of you may invest. If you are investing jointly as Accredited Investors, these limits will not apply.
Example: Investor Smith earns $124,000 per year and has a net worth of $150,000. This means that he is limited to investing 10% of the greater of the two, or $15,000, annually. Investor Smith makes his first Reg CF (Title III) investment on December 1, 2022, investing $7,500 in Company X. On November 27, 2023 Investor Smith would like to make his second Title III investment, investing $10,000 in Company Y. But he can’t; he can invest only $7,500 in Company Y. But he could invest $7,500 in Company Y on November 27, 2023 and another $2,500 (actually, another $15,000, if he wanted to) on December 1, 2023.
How to invest
Registration
First, register at the Small Change Site. There, you will establish log-in credentials and provide us with some information about yourself.
You will also be asked to review and confirm that you will comply with our Terms of Use and Privacy Policy, and consent to electronic delivery (i.e., email) of all documents.
We have the right to reject or revoke your registration to our Site for any reason, including a violation of our Terms of Use or Privacy Policy.
Online process
Under Title III, the entire investment process happens online, through the Site. We will never send you paper, call you on the phone (except in some emergencies), or ask to meet with you.
Making an investment
You can see investment opportunities as soon as you visit the Site. When you click on an opportunity that interests you, you will be able to see all of the information available about the opportunity (see the “Issuer Information” section below). But you won’t be allowed to invest until you register.
Once you decide to invest, click on the “Add Some Change” button. We will ask for more information, arrange for you to pay for your investment, and asked you to sign one or more documents with the Issuer. For example, you might be asked to sign something called an “Investment Agreement.”
Having done all that, you will be deemed to have made an “investment commitment.” But you’ll still have a chance to cancel, as described below.
Notice of investment commitment
Once we receive your investment commitment, we will notify you of
The dollar amount of your commitment
The price of the Securities you committed to buy
The name of the Issuer
The date and time by which you may cancel your commitment
Target offering amount and offering deadline
For each offering, the Issuer will disclose a “target offering amount,” meaning the minimum amount the Issuer is trying to raise (in some cases this could be as little as $1), and an “offering deadline.” If the Issuer doesn’t raise the target amount before the offering deadline, then the offering will be cancelled and any investors who have made investment commitments will receive their money back. If the Issuer reaches the target offering amount before the offering deadline, it may close the offering early, provided that it gives at least five business days’ notice to investors that the offering will close.
If an Issuer intends to accept investments over and above the target offering amount, it must disclose the maximum amount it will accept and how it will handle “over-subscriptions.” For example, the Issuer might allocate the securities on a first-come first-served basis, or pro-rata among all of the investors who make investment commitments, or in some other way.
Your right to cancel your investment
You can cancel your investment commitment at any time up to 48 hours before the offering deadline, for any reason. The Site will explain how.
Also, if there is a “material” change in the offering (an important change) after you make your investment commitment, then your commitment will automatically be cancelled, and you will be asked to make a new commitment based on the new information.
Paying for your investment
You will pay for your securities using one of the options described on the Site. Your payment options might include a direct transfer from your bank account, a wire transfer, or a credit card. You might be charged a convenience fee for using a credit card.
When you invest, your money will be held in an account administered by a qualified third-party financial institution until the offering is completed. We, as a Funding Portal, are prohibited from holding your money. If the Issuer is successful in raising the target offering amount, the bank will release the investors’ money to the Company. We will notify you by email and the investment process will be complete.
Confirmation of transaction
Before your investment is final, we will send you a notice disclosing, among other things:
- The date of the transaction
- The type of Security you are buying
- The price and number of Securities you are buying, as well as the number of Securities sold by the issuer in the entire transaction and the price(s) at which the Securities were sold
- If you are buying a debt security, the interest rate and the yield to maturity calculated from the price paid and the maturity date
- If you are buying a callable security, the first date that the security can be called by the issuer
- The source, form and amount of any compensation we, the Funding Portal, expect to receive in the transaction
Restrictions on resale
Once you buy a Security (e.g., a share of stock), you aren’t allowed to sell or otherwise transfer the Security for one year, except for sales or transfers:
- Back to the Issuer
- To an “Accredited Investor”;
- As part of an offering registered with the SEC; or
- To a family member, to a trust you control, to a trust created for the benefit of your family member, or in connection with death or divorce.
The term “family member” includes a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the purchaser, and includes adoptive relationships. The term “spousal equivalent” means a cohabitant occupying a relationship generally equivalent to that of a spouse.
Information the issuer will disclose
Before you invest
Before you invest, the Issuer must provide you with extensive information on a Form C, which will be available on the Site. The information includes:
- The Issuer’s name, address, and website
- The Issuer’s directors and officers
- The principal occupation and employment for the last three years of each director and officer
- The names of each person owning 20% or more of the Issuer’s voting securities
- The risk factors associated with the investment
- The Issuer’s business and business plan
- How the proceeds of the offering will be used
- The Issuer’s ownership and capital structure
- A description of how rights exercised by the principals of the Issuer could affect investors
- The compensation paid to us in the offering
- A description of previous offerings by the Issuer
- Whether the Issuer has previously failed to file the reports required by law
- Transactions with officers, directors, and other “insiders”
- Whether the Issuer would be disqualified from offering securities under Title III under the “bad actor” rules, if the effective date of those rules were different
- A discussion of the Issuer’s financial condition
- How the Issuer will deal with over-subscriptions
- Where on the Issuers website it will post annual reports, and when the annual reports will be available
- Financial information about the Issuer, as described below
- Any other information necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading
What types of financial information an Issuer must provide depends on three things:
- How much money the Issuer is trying to raise in the current offering;
- Whether this is the Issuer’s first offering using Title III; and
- If this is not the Issuer’s first offering using Title III, how much the Issuer has raised in other Title III offerings during the last 12 months.
Where the amount of the Title III offering, together with all other Title III offerings of the same Issuer within the last 12 months, is:
$124,000 or less:
The Issuer must provide the Issuer’s total income, tax income, and total tax, as reported on the Issuer’s Federal tax return, certified by the principal executive officer of the Issuer; and financial statements of the Issuer, certified by the principal
More than $124,000, to $618,000:
The Issuer must provide financial statements that have been reviewed by a public accountant that is independent of the Issuer, but If financial statements are available that have been audited by a public accountant that is independent of the Issuer, then those financial statements will be used instead.
More than $618,000, to $1,235,000:
If this is the Issuer’s first Title III offering, the Issuer must provide financial statements that have been reviewed by a public accountant that is independent of the Issuer. If this is not the Issuer’s first Title III offering, the Issuer must provide financial statements that have been audited by a public accountant that is independent of the Issuer.
More than $1,235,000, to $5,000,000:
The Issuer must provide financial statements audited by an independent public accountant and the accountant’s audit report.
All financial statements must be prepared in accordance with U.S. “generally accepted accounting principals.” Financial statement reviews must be conducted in accordance with the Statements on Standards for Accounting and Review Services issued by the Accounting and Review Services Committee of the AICPA. Financial statement audits must be conducted in accordance with either (i) auditing standards of the AICPA, or (ii) the standards of the Public Company Accounting Oversight Board.
If information changes before closing
If you make an investment commitment and there are important changes between the date of your commitment and the date the investment is concluded, then (1) the Issuer must notify you of the changes, (2) your investment commitment will be canceled automatically, and (3) you will be asked whether you want to make a new commitment based on the new information
After you invest
After you invest, the Issuer is generally required to file annual reports with the SEC and post them on its own website within 120 days after the end of the fiscal year. The annual report will typically include:
- The same types of information included on the Form C you saw when you invested;
- Updated financial statements certified by the principal executive officer of the Issuer (the financial statements don’t have to be reviewed or audited, but if the Issuer already has reviewed or audited financial statements, they must be provided); and
- Updated disclosures about the Issuer’s financial condition.
The Issuer is allowed to stop filing annual reports upon the earlier to occur of:
- The date the Issuer has filed at least one annual report and has fewer than 300 shareholders of record;
- The date the Issuer has filed at least three annual reports and has total assets no greater than $10 million;
- The date the Issuer or someone else buys all of the securities issued in the Title III offering;
- The date the Issuer registers its securities and is required to file reports under the Securities Exchange Act of 1934; or
- The date the Issuer is dissolved under state law.
At best, you will have current information about the Issuer once per year. If the Issuer stops providing annual reports, you won’t have current financial information about the Issuer at all.
Promoters
An Issuer might hire a public relations firm or other third party to promote the Issuer’s offering on the Platform – for example, by talking about the offering in our chat room. Or an employee or founder of the Issuer might do the same thing. In either case, the person doing the promoting must identify himself or herself on the Platform and disclose that he or she is engaged in promotional activity. In the case of a third party, the third party must also disclose that it is being paid for its promotional activity.
(Part 3 cont'd later)
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