When it comes to early stage investing, due diligence is critical to making an informed investment decision. If you’re considering an equity crowdfunding offer, a great way to start is to review the company’s Form C. According to the rules, companies are required to file a Form C with the US Securities Exchange Commission (SEC) before launching an offering under Regulation Crowdfunding. A Form C is a legal document that contains important information about the company’s offering, financials, directors, security holders, risk factors and more. Like any legal document, it can be several pages long and can be filled with heavy jargon. Whether you’re a new or seasoned investor, it can be easy to overlook or misinterpret information that can help you make a decision. While we strongly recommend consulting with your financial advisor, we believe that you should be able to understand the basics beforehand.
Summary of Security Offering
In this section, you will find what type of security is being offered by the company: common stock, preferred stock, a SAFE or a convertible note. Each offering can be very different in terms of the rights you may be entitled to and the risks that you are subject to. You will also find the security offering price (e.g. 1.25/per share of common stock), the target number of securities being offered (e.g. 20,000 shares of common stock), the target amount that the company intends to raise (e.g. $25,0000), the maximum amount that the company can raise under regulation crowdfunding ($1,070,000.00) and the deadline to reach the target amount (e.g. June 1, 2019). In addition, you will find whether or not oversubscriptions are accepted. Oversubscriptions determine whether or not the company will allow prospective investors to invest after they’ve met their target amount before the deadline. If allowed, the company will indicate if oversubscriptions are allocated by a first-come, first-served, pro-rata or other basis.
Summary of Financial Information
In this section, you will find a summary of the company’s financial information for the most recent fiscal year end (e.g. 2018) and the prior fiscal year end (e.g. 2017). For both, you will find a report on the company’s total assets, cash and cash equivalents, accounts receivable, short-term debt, long-term debt, revenues/sales, costs of goods sold, taxes paid and net income.
Directors of the Company
In this section, you will find a list of directors of the company which may include management, such as the CEO and CFO. For each director, you will find their full legal name, title, a bio and their previous business experience for the last three years.
Principal Security Holders
In this section, you will find a list of principal security holders who own 20% or more of the company’s voting shares. For each holder, you will find their full legal name, the type and number of securities they own and the percentage of voting power they have.
Business and Anticipated Business Plan
In this section, you will find detailed information on the company’s current and anticipated business plans, products and/or services, intellectual property, competition, customer base. In addition, you will find whether or not the company is subject to any governmental or regulatory approval and compliance and if there are any pending legal suits against the company.
In this section, you will find a list of risks identified by the company pertaining to their business, industry, security and offering.
In this section, you will find a general summary of the company’s raise and the use of proceeds. You will also find a table that shows how much the company intends to allocate towards each purpose, according to the target and maximum amount they can raise. For example, you may find that if the company reaches its target amount of $25,000, they may allocate $15,000 towards marketing purposes. But if they reach their maximum amount of $1,070,000.00, they may allocate $100,000 towards marketing purposes.
Ownership and Capital Structure
Description of Issuer’s Securities
In this section, you will find how many securities the company has already issued, if they plan to issue more in the future and how it may affect the rights of the securities being offered. For example, if a company is offering common stock that does not have anti-dilution rights, future issuances of securities will dilute an investor’s ownership percentage.
You will also find how principal shareholder rights will affect the purchasers of the securities being offered. For example, if the principal shareholders exercise their voting rights, then the minority shareholders will have no ability to override the principal shareholders’ votes.
Other Exempt Offerings
In this section, you will find whether or not the company has raised money within the past three years. If they have, you will find a table that shows the date of the offering, the exemption used to raise money, the type of securities offered, how many securities were sold and the use of proceeds.
Financial Condition of the Issuer
In this section, you will find a summary on the company’s business, financial needs and viability. In addition, you will find if there are any major capital commitments that are approaching or need to be made.
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