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

Common stock offering: Investing in a common stock offering makes you a common stockholder where you own a stake in a company. Owning a stake in the company does not always come with rights, such as voting rights and dividend rights. The company may reserve these rights for preferred stock or other stockholders. Common stock can be purchased or sold through the stock market.

It is important to understand that investing in a common stock offering makes you subject to the following risks:

a. Minority shareholders have little influence: Minority shareholders are shareholders who owns less than 50% of a company’s total shares. When a vote is held on company matters, they have very little influence on the outcome.

b. Lower stake claim: A lower stake claim means if a company faces bankruptcy, debt and/or other financial obligations, common stockholders are last in line to receive their share of any leftover assets (first in line are financial obligations and second are preferred stockholders).

c. Down round: A down round means a company has lowered their valuation at a new financing round which will result in the reduced value of your investment.

d. Dilution: Dilution means a company has issued additional shares at a new financing round which reduces your ownership percentage.

Preferred stock offering: Investing in a preferred stock offering makes you a preferred stockholder where you own a stake in a company that typically comes with rights, such as voting rights, dividend rights and conversion rights. Preferred stockholders have a higher stake claim which means if a company faces bankruptcy, debt and/or other financial obligations, they are second in line to receive their share of any leftover assets (first in line are financial obligations). Preferred stock cannot be purchased or sold on the stock market.

SAFE offering: Investing in a SAFE offering makes you a SAFE holder where your investment gives you the right to receive equity upon a triggering event (until then, you do not own a stake in the company). The triggering event is set by the issuer at their discretion and may be the closing of a new private financing round or sale of the company.

a. Triggering event may not occur: A triggering event may not occur which means you will not be able to convert your investment into equity. If this occurs, the issuer is not obligated to return your investment.

b. Repurchase rights: The issuer may have the right to repurchase your right to receive equity which means your investment will not convert into equity.

c. Dissolution rights: The issuer may dissolve and cease operations which means your investment will be impacted in some way.

d. Voting rights: The issuer may not offer voting rights which means when a vote is held on company matters, you will not be able to participate.

Convertible note offering: Investing in a convertible note offering makes you a convertible note holder where your investment can convert into equity or be repaid in cash upon a triggering event (unlike other forms of debt, you have the option to choose). The triggering event is set by the issuer at their discretion and may be the closing of a new private financing round or an initial public offering.

If you choose to convert your investment into equity, the amount of equity that you will receive may depend on the valuation of the company at their next financing round and may include a valuation cap. It is important to understand that investing in a convertible note offering makes you subject to the following risks:

a. Default risk: A default risk means the company may not be able to make any interest or principal payments resulting in the loss of your investment.

b. Triggering event may not occur: A triggering event may not occur which means you will not be able to convert your investment into equity.

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.
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