Course II – Types of Offerings

1: What are the different types of offerings companies make on Equifund CFP.

  1. Debt – You can invest in a debt/loan based offering, where the issuer commits to paying you a predetermined interest rate along with the full return of the principal amount. These interest and principal payments, traditionally amortized, are dispersed according to a payment schedule found in the offering documents. The offering can be secured (backed by assets in case the company cannot repay) or unsecured (supported only by the issuer’s creditworthiness – no collateral).
    Investors are subject to several risk, including (i) the company is unable to make several or all loan payments resulting in the complete loss of your investment (default risk), (ii) a secondary market for you to trade your loan may never develop so you will have to hold the loan until its term ends (liquidity risk), (iii) a change in interest rates may affect the value of your loan (interest rate risks), (iv) you do not have any voting rights in the company and therefore cannot participate in major decisions affecting the company, and (vii) for secured loans, the value of the collateral may decrease or be insufficient to cover the loan amount in the event of default.
  2. Convertible Notes – this investing instrument is a short-term debt security (see above) that converts into equity upon a specific event, typically when the company completes a financing round. Investors should pay careful attention to the terms of the conversion; such as valuation caps and discount rates or any other events that trigger the conversion.
    Convertible Notes typically will convert upon the occurrence of a specific event such as the capital closing a new round of private financing or an initial public offering. The amount of equity that the note will convert into typically depends on the valuation of the company at the next round of financing but may include a valuation cap. Investors should carefully review the note to understand the terms, structure and what if any limitations exist. There is no guarantee that the events which trigger conversion of the convertible note into equity will ever occur or will occur on favorable terms. The company may be unable to make any principal or interest payments. You may lose your entire investment.
  3. Common stock – Investing in common stock gives you an ownership stake in the company, but not necessarily voting rights or a right to claim a dividend in the event of the company making a profit. Therefore, it is imperative to read the offering documents before making an investment.
    Investors in common stock may lose some or all of their investment if the company is unsuccessful so you should not invest any amount that you cannot afford to lose. In the event of bankruptcy, debt and other financial obligations are paid before equity holders so there might not be enough assets to recover any part of your investment. The company may issue preferred securities or other securities with rights greater than the rights of common stock holders, including dividend rights, liquidation preferences, greater voting rights or representation on the board of directors. Minority shareholders will have very little ability to influence the direction of the company when it comes to voting. The valuation of the company may have been arbitrarily determined. Future rounds of financing may occur at a lower valuation (called a “down round”) which will result in the decrease value of your investment. If the company issues additional securities, which you should anticipate in new ventures, then your percentage ownership of the company will decrease (also called “dilution”).
  4. Preferred stock -Preferred stock is an equity security issued by the company that holds certain preferred rights attached to it. Preferred stock owners are given a higher stake claim over the common stock owners in regards to liquidity events, dividend distribution or debt repayments. They are traditionally accompanied by special voting rights etc.
  5. SAFE – Simple Agreement for Future Equity (SAFE) – is a cash investment in a company with the right to receive equity in the company at a future date upon certain terms and conditions.
    A SAFE is not common stock and does not represent a current equity stake in a company. Instead, the terms of a SAFE have to be met for you to receive your equity stake. A SAFE may only convert to equity if certain triggering events occur, and depending on its terms, a SAFE may not be triggered at all.


More about SAFE…A SAFE is an agreement between you, the investor, and the company in which the company generally promises to give you a future equity stake in the company IF certain trigger events occur.   Despite its name, a SAFE may not be “simple” or “safe.”  SAFE investors do not receive equity in the Company (so you are not a shareholder or have the statutory rights of shareholder) or debt. Instead, investors acquire a right to convert the SAFE into equity (often common stock or preferred stock) of the Company upon the occurrence of certain events described in the SAFE. If the conversion event never occurs, you generally will not be able to convert your SAFE into equity. Not all SAFEs are the same so it is very important to understand the different terms and decide whether the investment is right for you. Unlike convertible notes, the Company does not have an obligation to repay you for the outstanding amount of the SAFE (it is not a loan). Unlike acquiring equity securities (like common stock or preferred stock), you are not a shareholder and do not have the same rights of shareholders (such as voting rights or distribution rights in the event bankruptcy).  Before you invest in a SAFE, it is important that you carefully read the offering materials made available on Equifund CFP to understand what events trigger the conversion to equity, conversion terms, any repurchase right the Company may have, your rights if the Company becomes bankrupt and any voting rights. SAFE investors face the risk that a triggering event never occurs or occurs on terms which are not favorable and no market develops for you to sell your SAFE.

What is important to keep in mind about SAFEs?

  1. SAFEs are not common stock. Common stock (or similar equity securities) represents an ownership stake in a company and entitles you to certain rights under state corporate law and federal securities law. SAFEs do not represent a current equity stake in the company in which you are investing. Instead, the terms of the SAFE have to be met for you to receive any shares in the company. A SAFE is an agreement to provide you a future equity stake based on the amount you invested if—and only if—a triggering event occurs, such as an additional round of financing or the sale of the company. There is no guarantee these events will occur—and if they do not, you can lose some or all of the money you invested.
  2. SAFEs are not all created equal. There is nothing standard or simple about a SAFE. For instance, different companies offering SAFEs use various terms to describe triggering events—and provisions concerning conversion and the conversion price might be subject to different treatment from issuer to issuer. It’s important to read and understand the company’s disclosure regarding the SAFE, as well as the terms set forth in the actual agreement.
  3. Understand what triggers the conversion of the SAFE. The SEC notes that the SAFE conversion may be triggered by a number of different scenarios that may—or may not—occur in the future for the company. For example, while one SAFE may be triggered if the company is acquired by or merged with another company, another may have as its trigger an initial public offering of securities by the company.
  4. A SAFE conversion may not be triggered. Despite the identified triggers for conversion of the SAFE, there may be scenarios where the triggers aren’t activated and the SAFE is not converted, leaving you with nothing. For example, if a company in which you invested makes enough money that it never again needs to raise capital, and it’s not acquired by another company, then the conversion of the SAFE may never be triggered.
  5. Know the terms and your rights with a SAFE. In addition to the trigger mechanism, there are a few other components of SAFEs that you should understand before you sign such an agreement with a crowdfunding issuer:
    1. Conversion terms. These are the specific terms by which the amount you invested in the SAFE gets converted into equity. For instance, the terms might explain whether it’s just your original investment that converts.
    2. Repurchase rights. There may be provisions in the SAFE that allow the company to repurchase your future right to equity instead of it being converted to equity.
    3. Dissolution rights. You need to know what happens to your SAFE and the money you invested if the company ends up dissolving.
    4. Voting rights. SAFEs do not represent current equity stakes in the company, and so do not provide you with voting rights similar to common stock. But there may be particular circumstances mentioned in the SAFE that allow you a voice on matters pertaining to your SAFE.


The SEC and FINRA have published notices to investors about investing in SAFE’s so we recommend you review before investing,

SEC: “Investor Bulletin: Be Cautious of SAFEs in Crowdfunding”

FINRA: “Be Safe—5 Things You Need to Know About SAFE Securities and Crowdfunding”

* Investors need to be aware that companies dictate the terms of their offering, including rights and obligations that are attached to the various different securities. You should carefully read the offering documents, including the “Form C”, to understand the securities being offered.

2: What are the other forms of Crowdfunding?

  • Reward-based – Raising funds online for a project in exchange of predetermined rewards or goods. In this crowdfunding mechanism, you are not receiving an ownership interest in a company but rather a gift or reward for helping a new venture.
  • Donation based – Raising funds online for a cause, where no return of any kind is expected or proposed.
  • Loan or Debt based – Raising secured or unsecured funds through the internet for a company project or person in exchange of an interest payout along with the return of the principal amount.

Pre-Investment Agreement

The next 8 slides will allow us to process your investment. Note that these next steps are a legal requirement – Thank you for your patience and financial support of this investment opportunity. Jordan Gillissie – CEO

Before we execute the investment, it’s important for us to make sure you’re comfortable and knowledgeable in early stage investing. We want to make sure that you:

    • Received and have reviewed the education materials sent to you.
    • UNDERSTAND; that there are restrictions on your ability to cancel your investment commitment and obtain a return of your investment.
    • KNOW; It may be difficult to resell securities acquired under Regulation Crowdfunding.
    • AGREE; investing in securities offered and sold in reliance on section 4(a)(6) of the Securities Act involves risk. Investors should not invest any funds unless he or she can afford to lose the entire amount of his or her investment. Your investment may not work out, and you must be in a financial condition to bear the loss.
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