Frequently Asked Questions
- What is FlashFunders?
- How is FlashFunders different from traditional crowdfunding sites like Kickstarter and Indiegogo?
- What are the risks and rewards of investing in early-stage companies?
- How much may I legally invest on FlashFunders?
- Why is there a difference between Reg A+, Reg CF and Reg D investors?
- What rights do investors get on FlashFunders?
FlashFunders is comprised of entities specifically created to assist you in making your offering both successful and compliant. Sutter Securities Clearing, LLC, member FINRA/SIPC, is a registered broker dealer that facilitates Reg D and Reg A+ offerings and offering deposit accounts. FlashFunders Funding Portal, member FINRA, is a registered funding portal that facilitates Reg CF offerings. FlashFunders Shareholder Services, LLC is an SEC registered Transfer Agent that allows investor holdings to be recorded and transferred electronically. Sutter Securities Group, Inc. is a technology company focused on making the online interaction between companies and investors intuitive and efficient. We believe this unique combination of expertise, regulatory registrations and technological know-how empowers FlashFunders to offer tools that connect companies and investors in entirely new ways.
*Sutter Securities Group, Inc. does not actually participate in securities offerings or activities
Crowdfunding sites like Kickstarter and Indiegogo allow people to donate money to campaigns in exchange for rewards. Once the backer receives the reward, the transaction is finished. The backer does not share in the company's potential upside success and the company does not give up any portion of equity ownership to the crowd.
On FlashFunders, investors purchase securities in private companies. They do not receive rewards, they receive stock or another type of investment in private companies. If the company becomes successful, shareholders have the potential to receive a return on their initial investment.
That makes company investing one of the most potentially rewarding, and most risky, ways to invest your money. Some companies grow to become icons of an era, like Google, Facebook, or Apple. But for every superstar, there are numerous respectable but quiet exits, and many failures.
That's why due diligence is so important. Investors need to be as well-educated and confident in their decisions as possible. Losing some or all of your investment is a very real possibility.
The SEC defines people who make over $200,000, or have a net worth over $1 million, as accredited investors. Accredited investors do not have investment limits if they participate in a Reg D or Reg A+ offering. For Reg A+ offerings (Tier II), unaccredited investors may invest up to 10% of the greater of their net worth or their annual income per offering.
For Reg CF offerings, the SEC limits how much investors may invest in private companies in a given year. Reg CF investors may invest the greater of $2,200, or 5% of the lesser of their annual income or net worth, if the investor's net worth or annual income is less than $107,000. A Reg CF investor may invest 10% of the lesser of their annual income or net worth if both their annual income and net worth are equal to or more than $107,000. There is a $107,000 aggregate investment limit across all issuers. Please review the SEC Bulletin about Regulation Crowdfunding for more information on investor limits under this exemption.
Before the Jumpstart Our Business companies (JOBS) Act of 2012, private companies who wanted to raise capital had to solicit investments via private channels. The JOBS Act quickly allowed privately held companies to solicit investments on public platforms like the internet.
But only accredited investors had access to those investments until the SEC formalized rules for a portions of the law called Title III (Reg CF) and Title IV (Reg A+). Title III & TItle IV allow people of any income to invest in companies.
- Who can invest?
- What is the difference between Reg A+, Reg CF and Reg D investors?
- Is there a minimum platform investment?
- Why are the investors called Reg A+, Reg CF and Reg D?
- Why are there investor limits?
- Can I invest in more than one company under Reg CF?
- Does FlashFunders charge fees to investors?
- Are investments from entities accepted on the platform?
There are four regulatory exemptions investors invest through. Investors who invest via Regulation CF invest through our funding portal. Investors who invest via Regulation D, Regulation A+, and Regulation S (if they reside internationally) invest through our broker dealer.
Reg A+ & Reg CF investors can invest as little as $50, and up to any amount according to their individual limits. All investors may invest smaller amounts under Reg A+ and Reg CF, but if they want to invest above their stated limits, they will have to verify their accreditation through the platform and participate in a Reg D investment.
Reg A+, Reg CF and Reg D investors purchase securities of a company at the same price, but there are differences in their investment limits, rights as stockholders, and how they are categorized by the SEC.
- What are the benefits of investing in private companies?
- What are the risks of early-stage investing?
- What types of securities are offered for purchase?
- What are the risks of investing in notes & debt securities (including Convertible Notes & Revenue Participation Notes)?
- What are the risks of investing in equity securities (Preferred Stock & Common Stock)?
It's not just about a potential financial return on investment. It's about becoming part of a company that may change the world. Think about all the companies that have fundamentally changed our culture. Early stage venture capital investing often means investing in ideas, entrepreneurs, and innovation. It also may mean changing the way the world works, influencing people's lives, and becoming an inextricable part of that story.
On FlashFunders, our objective is to give everyone access to those opportunities on an open, transparent online market.
Without early-stage investing, the world likely would be a very different place. Great ideas need you.
We're an open marketplace, and we believe that companies from anywhere in the world and from any sector, deserve an opportunity to be on our platform. Although FinTech Clearing and/or FlashFunders Funding Portal conduct a limited proprietary review of all offerings, your due diligence is vital. Investors should be familiar with and willing to accept the high risk associated with private investments.
Private Stock with No Public Market:
Private stocks are securities with no public market for resale. The investments are private and illiquid, so you can't convert them to cash easily. You should be willing to hold that investment indefinitely.
Need to Do Due Diligence:
Any securities offered on FlashFunders are offered directly by the companies themselves, and those companies are solely responsible for the contents of any materials made available to prospective investors on the FlashFunders website. FlashFunders only reviews a company's self-verifications that it is free of “bad actors.” FlashFunders also conducts corporate status checks using public databases, verifies the identities of key founders, and conducts anti-money laundering compliance checks.
Investors are responsible for conducting research on a potential investment, including understanding the company's exit strategy. An exit strategy is how a company intends to “cash out” their shareholders' investments. However, there is no guarantee of when or whether that exit strategy will happen.
Difficulty in Valuing Private Companies:
It can be incredibly difficult to value early-stage companies. They're just starting out, so the company's value generally can't be based on its assets, book value, or historical results of operations. You shouldn't consider the offering's valuation or share price a formal indication of the company's worth. Use your judgment to decide the worth of the shares you buy.
Risk of Total Loss:
Many companies fail - that's why due diligence is so important. It's up to you to judge if an early-stage company has the potential to succeed. FlashFunders does not recommend or endorse any of the materials that companies post on the FlashFunders website, and does not conduct diligence on the business plan, disclosures, risks, prospects, or other investment considerations of any company. You may lose some or all of your investment, and you need to be in a financial position to be able to bear that loss.
Convertible Notes and Revenue Participates Notes (Debt Securities)
Common Stock and Preferred Stock (Equity Securities)
Investing in private companies through any type of 'note' includes the risk of total loss and is extremely speculative.
Since notes are debt securities, there is an obligation by the company to pay back principal and interest to the investor. However, if the company encounters financial difficulties, there could be missed payments or total loss of the investment to the investor.
Revenue Participation Notes (RPNs) are a specific form of Note that bear an annual interest rate but also have an added feature of revenue participation whereby the investor can receive a percentage of sales if the amount is greater than the annual interest rate. RPNs allow investors to have upside benefits in a situation where a company has significant revenue growth. However, as is the case with many early stage businesses, revenue forecasts may not be met and investors in RPNs may not reap the benefits of any revenue participation. The expectation of revenue participation in an RPN is highly speculative and is not guaranteed.
Notes typically have maturity dates which means that investors may no longer hold the security past a specified date if the company has performed all obligations specified in the note.
If a company is liquidated, noteholders would receive their capital back prior to any equity investors (preferred or common shareholders). However, investors may, depending on the company's financial circumstances, be returned some, all or none of their invested capital and/or accrued interest.
Investing in private companies through any type of 'stock' or equity security includes the risk of total loss and is extremely speculative.
When an investor makes an equity investment in a private company, an investor has the opportunity to share in the benefits of a company's potential business success. However, there is no guarantee or obligation by the company to provide any returns, cash flows or dividends to the investor unless otherwise specified.
Equity investors may lose their entire investment or may not have a chance for a return for many years. Some equity investments take over a decade to see any returns.
If a company is liquidated, equity investors typically only receive their capital after all noteholders are paid their capital first, with preferred shareholders then receiving priority over common shareholders. However, investors may, depending on the company's financial circumstances, be returned some, all or none of their invested capital.
*Investors should always review the disclosures and risks specific to a given offering and its securities structure, which can be found in a company's offering materials.
- How do I find a company?
- What do I need for the investment process?
- How is ownership percentage calculated?
- How do I increase my investment in a specific company?
- If I change my mind, can I cancel my investment and receive a refund?
- How long does it take for me to receive my refund?
- How do I know when my transaction is complete?
- What is a successful close?
- What happens if an offering fails to close?
Reg A+ investors must self-certify that their investment amount per offering falls within the investment limits required by SEC rules, i.e. 10% of the greater of net worth or annual income.
Reg CF investors will be asked to report income or net worth, and any company investments made in the past year. FlashFunders will automatically calculate your annual investment limit.
Reg D investors must verify their income or net worth in one of two ways. The easier way is to provide the contact information for an accountant, lawyer, or financial advisor, who completes a simple electronic form confirming that you qualify. Or, you can upload documents, such as financial statements or tax returns, and FinTech Clearing may do a soft pull of your credit report to verify your net worth.
If an investor does not cancel an investment commitment in a Reg CF offering before the 48-hour period prior to the offering deadline, the funds will be released to the company upon closing of the offering and the investor will receive securities in exchange for his or her investment.
- Can investors invest in the same company again?
- How is communication managed?
- Does FlashFunders issue stock certificates to investors?
- What happens to my share of ownership if the company issues new shares in future financing rounds?
- What happens if a business fails?
- How are returns distributed to investors?
- What is the process for the offer, purchase and issuance of securities on FlashFunders?
- Under what circumstances can my investment be cancelled by the issuer?
- What restrictions are there on transferring Reg. CF securities?
- What ongoing reports and information are issuers required to provide if I invest in their Reg. CF offering?
- Under what circumstances may an issuer stop publishing ongoing annual reports?
- What financial disclosures are companies required to make for Reg CF offerings?
- How does FlashFunders Funding Portal get paid?
- Are there any other important items regarding FlashFunders Funding Portal and Reg CF that investors need to know?
Any shares will be issued as uncertificated book-entry securities and records will be centralized and recorded electronically in a system managed by the Company's transfer agent, if elected. The shares will be accessible via the Investor dashboard in the investors' FlashFunders account, and inquiries regarding the shares and communications with the Company for Reg CF investors can be managed through the transfer agent.
(1) To the issuer of the securities.
(2) To an accredited investor as verified by Sutter Securities Group, Inc.
(3) As part of an offering registered with the Commission.
(4) To a family member of the purchaser or the equivalent, or in connection with certain events, including death or divorce of the purchaser, or other similar circumstances, in the discretion of the Commission.
If the issuer has available financial statements that have either been reviewed or audited by a public accountant that is independent of the issuer, those financial statements must be provided and the certification by the principal executive officer will not be required.
The annual report also must include the disclosure required by paragraphs (a), (b), (c), (d), (e), (f), (m), (p), (q), (r), and (x) of § 227.201 of Regulation Crowdfunding. The report must be filed in accordance with the Regulation Crowdfunding Filing Requirements for Form C - AR no later than 120 days after the end of the fiscal year covered by the report.
The annual reporting requirement is ongoing, but may terminate in the future if the issuer qualifies under various circumstances.
(1) The issuer is required to file reports under Section 13(a) or Section 15(d) of the Exchange Act.
(2) The issuer has filed, since its most recent sale of securities pursuant to this part, at least one annual report pursuant to this section and has fewer than 300 holders of record.
(3) The issuer has filed, since its most recent sale of securities pursuant to this part, the annual reports required pursuant to this section for at least the three most recent years and has total assets that do not exceed $10,000,000.
(4) The issuer or another party repurchases all of 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.
(5) The issuer liquidates or dissolves its business in accordance with state law.
$107,000 or less: If current offering plus previous raises amounts to $107,000 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.
$107,000.01 to $535,000: If the current offering plus previous raises is between $107,000 and $535,000, financial statements are required and must be reviewed by a CPA. If audited financial statements are available, they must be provided.
$535,000.01 to $1.07 million: If current offering plus previous raises amounts to $535,000.01 or more, the required financial statements must be audited by a CPA. However, if the issuer has not previously sold securities under Reg CF, the financial statements will only be required to be reviewed by a CPA.
Note: An audit provides a level of scrutiny by the accountant that is higher than a review. The required information is filed with the SEC and posted at the start of the offering on FlashFunders and available to the public throughout the offering on the FlashFunders and SEC sites. It is available to the general public on both websites throughout the offering period – which must be a minimum of 21 days.
How does FlashFunders Funding Portal get paid? FlashFunders Funding Portal charges fees to companies for listing on the platform and as a percentage (%) of the amount raised. The listing fee is determined by the complexity of each company. The percentage fee is a success-based fee that is typically 5% but is subject to change at any time and is disclosed in the offering document of the issuer.
As a registered funding portal, FlashFunders Funding Portal cannot and will not:
Offer investment advice or make recommendations; solicit purchases, sales or offers to buy securities; compensate promoters and other persons for solicitations or based on the sale of securities; and hold, possess, or handle investor funds or securities.
Allow companies to list securities on our platform that we have a reasonable basis for believing have the potential for fraud or raise other investor protection concerns.
Have a financial interest in a company that is offering or selling securities on our platform under Regulation Crowdfunding outside of financial interest paid as compensation for the services.
Compensate any person for providing us with personally identifiable information of any investor or potential investor.