Ownership, ROI and Follow-up Answers for Equity Crowdfunding Investors
Throughout the past six months we have shared various informative articles to help educate our followers. Blogs on questions crowdfunding investors should ask issuers and equity offering Q&A for entrepreneurs have helped familiarize our readers with basic definitions and procedures of the industry. As promised, we will continue to help educate our future equity crowdfunding entrepreneurs and investors before and after Title III is enacted by the SEC.
As 2015 gets rolling we want to maintain a steady influx of informative blogs on our stream. One important factor we take note of is giving equal attention to entrepreneurs and investors. We fully acknowledge and agree that one cannot work without the other and wish for all of our clients to succeed. You can count on several educational blogs each month for both sides of the equity crowdfunding equation.
Today’s equity crowdfunding Q&A will discuss ownership, ROI (return on investment) and follow-up questions for investors. Some of the language and definitions of these terms may be confusing for a new investor – and don’t worry if it is. The entire purpose of these educational blogs is to get you more familiar with the terminology. This way, once Title III is finally enacted, you will be ready to start equity crowdfunding right away.
Please enjoy the following equity crowdfunding questions and answers:
Equity Ownership, ROI & Follow-up
Can my percentage ownership be diluted? If yes, when and how?
Yes. Any investment made through truCrowd may be subject to dilution in the future. Dilution occurs when a company issues more shares. Dilution affects every existing shareholder who does not buy any of the new shares being issued. As a result, an existing shareholder’s proportionate shareholding of the company is reduced or ‘diluted’- this has an effect on a number of things including voting, dividends and value.
Some businesses who pitch through truCrowd offer A-Ordinary Shares, which may include pre-emption rights that protect an investor from dilution. In this situation the business must give shareholders with A-Ordinary Shares the opportunity to buy additional shares during a subsequent fundraising round so that they can maintain or preserve their shareholding. Please research the pitch and the Articles of the company to see if the shares you are buying will have these pre-emption rights. Most companies do not offer pre-emption rights for B Investment Shares.
Will I get dividends?
Dividends are payments made by a business to its shareholders from the company’s profits. Most of the companies offering equity on our platform are startups or early stage companies who will rarely pay dividends to their investors. This means you are unlikely to see a return on your investment until you are able to sell your shares. Profits are typically reinvested into the business to fuel growth and build shareholder value. Businesses have no obligation to pay shareholder dividends.
Can I resell my investment?
Yes. However, investments in crowdfunding assets should be viewed as a long-term and illiquid investment. Conforming to current stipulations, you must hold any purchased shares for a minimum of 12 months from the acquisition date.
Liquidity is the ease in which you can sell your shares after you have purchased them. Buying shares in businesses pitching through truCrowd cannot be sold easily as they are unlikely to be listed on a secondary trading market, such as NASDAQ, AMEX or the New York Stock Exchange. Even successful companies rarely list shares on such an exchange. In addition, if you purchase B Investment Shares, these are non-voting shares and may not be attractive to potential buyers. Without a public market to find a buyer for shares, it may be more difficult to sell them for a cash return.
What will be my return on investment?
With equity crowdfunding you receive actual shares of the business. You will receive a traditional ROI if/when the company is listed on a stock exchange, gets sold or pays a dividend. At some point there will be a secondary market for crowdfunding investments and you can sell your shares.
How long until I see a return?
There is no definitive answer to how long it takes to receive a return. You may end up holding shares in a company for a long time, but that is not necessarily a bad thing. All products/markets mature differently and through wise investing you can predict what investments offer the fastest and highest ROI.
Usually you obtain ROI when the company is listed on a stock exchange, gets sold or pays a dividend. At some point there will be a secondary market for crowdfunding investments and you can sell your shares.
Will I receive an annual report from the company I invested in?
Yes. You will receive an annual report in addition to everything the entrepreneur promised to send in the periodical report.
How can I help the startups I invest in?
There are a variety of ways to nourish and accelerate the success of your new investment:
- Become the brand’s ambassador by advertising the company, its products and services. Online and offline.
- Offer product feedback
- Bring your specific knowledge and expertise if the entrepreneur wishes help
Some entrepreneurs may suggested precise guideline for you to follow when acting as ambassador/promoter.
Can I interact with the Entrepreneur post-investment?
Yes. Once an equity offering ends successfully, your investment portfolio is updated on truCrowd and you can continue to interact with the entrepreneur and the other investors through the Offering’s Communication Channel.
Did you see any questions you are already familiar with? Did any of the questions seems too hard or confusing to understand? It is very important to take note of what comes easy and what is still taking time to soak in. Do yourself a favor and either bookmark this page or write down the equity crowdfunding phrases you need to spend some more time on. You can find all of these questions and many more at our truCrowd support page.
Thank you for reading and please leave your questions and comments below!