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On May 16, 2016, regulatory reforms became effective that permitted everyday investors and not just the wealthy to invest in private companies raising capital under the provisions of Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012. Securities-based crowdfunding is an exciting opportunity for all investors to invest in new ventures. However, investing in early stage companies and private securities (securities not registered with the SEC) expose investors to increased risks of loss of their entire investment amount. Investing in startups is highly speculative since new ventures have a high probability of failure. Because of the risks involved with securities-based crowdfunding, you are limited in how much you can invest during any 12-month period and are required to review certain educational materials to learn about the investment process, limitations and risks before you invest.
This section aims to educate you, the investor, what the process will be before you choose to invest in a Company, the requirements for investing, and the risks that come with investing in an equity crowdfunding offering.
Welcome to Bumper Collective!
The types of securities offered and sold on our crowdfunding portal and the risks associated with each type of security, including the risk of having limited voting power as a result of dilution, are discussed below:
Common Stock: Investors that receive common stock become shareholders of the Company. There are different classes of common stock so you should carefully review the terms describing the security being offered. For example, although common stock holders generally have voting rights, the Company may issue a class of common stock which does not give you the right to vote or offers greater voting rights per share than other classes of stock. Unlike lenders that receive debt the Company, investors who receive common stock or other forms of equity do not have a right of repayment of their investment amount. In the event of bankruptcy, lenders (debt holders) and holders of other financial obligations are paid before shareholders when assets are distributed (assuming there are any assets). The Company may also issue preferred securities or other types of securities which have greater rights than common stock holders, including voting rights, dividend rights, right to representation on the board of directors or even a liquidation preference. Even though you may have voting rights as a common stock holder, if you are a minority shareholder you will have little influence on the outcome of any matters brought before the shareholders for voting. The price of the shares of common stock may be arbitrarily determined by the Company which means that you may have paid a price greater than the actual value. Unlike public companies, the price of the shares being offered are not determined by market but rather by the Company issuing such securities. Diversification of your investments by spreading your investments across several different types of investments can help you reduce the risk of your investment portfolio. With investing it is usually best not to put all of your eggs into a single basket. Please note that diversification does not ensure a profit or protect against losses.
Preferred Stock: A Company may issue a separate class of stock which special rights and privileges, including without limitation voting rights, dividend rights, anti-dilution and liquidation preferences. Preferred stock holders have similar risks to common stock holders but receive better or different terms. Investors who receive preferred stock generally are exposed to similar risks as other holders of equity.
Simple Agreement for Future Equity (SAFE): SAFE investors do not receive equity in the Company 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). Before you invest in a SAFE, it is important that you carefully read the offering materials made available on Stampede 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.
Music Royalties: A royalty is a contractual right to receive a percentage of revenue, such as a percentage of total sales of a product or overall revenue of the ompany. A royalty can be based upon net or gross sales, contain a cap on the total amount you receive back as a return on your investment or be subject to certain liens. It is very important that you understand the terms of the royalty before investing. There is no guarantee that you will receive a royalty payment and the royalty may expire without any investment return or result in the complete loss of your investment. An investor who receives a royalty is not a shareholder and therefore has no voting rights or other rights of a shareholder. Transfer restrictions may prevent you from assigning or selling your royalty to a third-party and there is no guarantee that a market will ever develop for you to sell your royalty interest.
Debt Instruments: A debt instrument is an investment where an investor loans money to a Company, which borrows the funds for a period of time at a set interest rate. Thus investors in debt instruments are creditors of the Company. An investor in a debt instrument runs the risk that the Company may default on payment, among other risks.
Investing in startups and other private companies comes with a high degree of risk of loss and you should only invest if you can afford to lose your entire investment. In addition to risks of losing some or all of your investment, there are other risks that startup investors and investors in private companies, including:
- a limited operating history of new ventures makes your investment more speculative and increases risk of the loss of your investment,
- a lack of liquidity or any market for the resale of your investment,
- a possibility of fraud or misrepresentation,
- a valuation of the Company may be inflated (so you may be overpaying),
- limited shareholder rights (such as if you are a minority shareholder),
- a failure to register intellectual property may result in theft of intellectual property and the company may lack resources to properly defend its rights,
- a high probability of dilution resulting from subsequent issuances in future funding rounds and issuances to employees, advisors and founders for services,
- early stage companies may not have access to professional advisors to advise on key elements of business development,
- management may have broad discretion over the use of proceeds from the offering and funds may not be used prudently due to inexperience or an unsuccessful business strategy, and
- startups may have difficulty raising additional capital to fund future operations and continue as an ongoing concern.
- Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult and you may risk overpaying for the equity stake you receive.
Securities offerings under Regulation Crowdfunding also expose investors to a number of risks. Regulation Crowdfunding requires companies to post an annual report no later than 120 days after the end of the fiscal year along with the financial statements describing the financial condition of the Company certified by its principal executive officer to be true and complete in all material respects. Under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the Company. In some circumstances a Company may fail in their obligation to file financial and other information concerning the Company. Bumper Collective has no control over such Company obligations. Following completion of a crowdfund offering, there may or may not be any ongoing relationship between the Company and Bumper Collective. As with other investments, there is no guarantee that your crowdfunding investment will be successful.
Carefully review the Company information and risk disclosure documents contained on the site, including the filings the Company made with the US Securities and Exchange Commission (SEC) before you invest. You should carefully consider:
Consider the risks/rewards
What are your investment goals? Is investing in a security offered and sold in reliance on Regulation Crowdfunding appropriate for you as an investor? Because of the high risk of failure by early stage ventures and other risks, only investors who are willing to accept a high risk and have the ability to lose their entire investment should invest in crowdfund offerings.
Can you lose your entire investment?
Yes. Investing in startups is highly speculative (risky). You should not invest any amount that you cannot afford to lose without a change in your lifestyle.
Conduct Due diligence
Bumper Collective does not endorse, recommend, or provide investment advice. The posting of a crowdfund offering on our portal should not in any way be interpreted as a recommendation to invest in the offering or any type of endorsement. You are solely responsible for making your own investment decision and should invest only after carefully studying the Company and the risks of investing in it. Bumper Collective provides a section on each deal page for you to publicly communicate with the Company’s management. We encourage you to ask questions and raise any issues you may have publicly. Because of the high risk of loss and illiquidity associated with crowdfund offerings, investing in offerings on the portal is not right for everyone. Therefore, you are strongly advised to consult your financial, tax and legal advisors before making any investment decision to understand if this is right for you.
What should I be thinking about before I invest?
Startups: Startups are much riskier investments than more established businesses and companies which are publicly traded on an exchange. You could lose your entire investment.
Do your research: As an investor, you should perform due diligence of the Company in advance of any investment. Look at the Company’s filing with the Securities and Exchange Commission (Form C Offering Circular link is available on the deal page for each offering) to see all material facts pertaining to the offering, including the management and business operations. We encourage you to review as much information on the Company as possible and not invest until your questions have been answered by the Company.
Ask questions: If you have any concerns or questions about a given offering posted on our portal, we encourage you to check thediscussion board as your question might already been asked and answered, or to post your questions onto the discussion board. We want the discussion board to be an interactive environment that allows investors to voice their ideas and concerns and get direct responses from the Company
Diversify: While investing in startups is risky, one way you can consider mitigating your risk is diversifying your investment portfolio. This means spreading your money across multiple investments (across different companies, asset classes (stocks and debt instruments), industries and geographic locations) so that all your eggs are not in one basket. This can help you reduce risk of loss if something happens to one Company, industry or region affecting your investment. Please note that diversification does not ensure a profit or protect against losses.
The limitations on the amounts an investor may invest;
How much you actually can invest:
The Maximum amount of your investment: If either your annual income or your net worth is less than $107,000, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth during any 12-month period.
If both your annual income and your net worth are equal to or more than $107,000 then you can invest up to 10% of annual income or net worth, whichever is lesser up to a maximum of $107,000 during any 12-month period.
Regulation Crowdfunding restricts the transfer of your securities for a period of 12 months from the date of purchase, except for certain limited exceptions. These exceptions are sales may be made to:
- to the Company issuing the securities,
- to an “accredited investor”,
- as part of a later offering registered with the SEC, or
- to a member of the family of the purchaser, to a trust controlled by the purchaser or created for the benefit of a member of the family of the purchaser, or in connection with a death or divorce.
However, even after the one-year period restricting the transfer of your security passes, there is no guarantee that there will be a market for you to sell your securities, or that you may be able to sell it on favorable terms. Therefore, investors should be prepared to hold their securities indefinitely. Unlike publicly listed companies, there is no public exchange where crowdfunding shares are listed and therefore investors may not be able to find a buyer.
Browse the Explore page: You can find all of our listings on the Explore page.
Deals: When you click on an investment you are interested in, you will be taken to the investment’s offering or deal page. There, you will find, a quick video about the Company and information about the investment, like the amoun being raised, the percentage of the Company being offered for sale, and the Company valuation. If you decide to invest, you can select how much (subject to investment limitations). Financial statements, the Company’s business plan, and other information concerning the investment should be carefully reviewed before you invest.
How do I invest? When you are confident that you want to invest, select how much you would like to invest and click the invest button located in the investor box. If you have not set up an account, you will be redirected to the sign-up page. Once you have completed the account opening process, you will be asked to sign by electronic signature on the bottom. After this, you will receive a notification about your investment via email.
What are my options for cancelling my investment? You may cancel an investment commitment for any reason until 48 hours prior to the offering deadline identified in the issuer’s offering materials or separate notice sent to you. If there is a material change to the terms of an offering, you will receive notice of the material change and your investor commitments will be canceled unless you reconfirm your investment commitment to the new terms within five business days of receipt of the notice. If an issuer is unable to raise its target amount to successfully complete the offering, you will receive a notification of cancellation of the offering and a full refund of your investment commitment.”
Can my investment be cancelled? There are circumstances when a company raising capital may cancel an investor’s commitment to make an investment. These include when the company is unsuccessful in raising the target amount of the offering, or when there is a material change in the offering and the investor does not reconfirm their investment commitment within five days of receiving notice of the material change. If an investor’s investment commitment is canceled, the investor will receive a full refund of their investment funds.
What happens after you get the notification email: Once you receive the notification email, your investment is sent into escrow. If the listing fails to reach its funding goal before the listing period, or if you choose to pull out your investment 48 hours before the deal closes, your account will be reimbersed with your full investment. If funding is successful, your account will be charged and your funds will be sent to escrow. This money is then released to the listed Company.
Bumper Collective Fees: Bumper Collective charges the following fees for services it provides in connection with the crowdfund offerings posted on the funding portal a (i) 5% of the gross proceeds (total amount raised) of each offering payable in cash (referenced in the Form C/Offering Documents, and (ii) negotiable percent of securities offered in such offering (referenced in form C/Offering Documents). All fees are payable at each closing by the issuer.