Risks

Note: We’ve prepared the following section as an excerpt from our full risk disclosures for your convenience. Investments found on Republic are inherently risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision.

Speculative. Investments in startups, early-stage ventures, emerging technology companies funds and digital asset projects are speculative and these enterprises often fail. Unlike an investment in a mature business, where there is a track record of revenue and income, the success of a startup, early-stage venture or emerging technology company often relies on the development of a new product or service that may or may not find a market. You should be prepared to lose your entire investment.

Illiquidity. Your ability to resell your investment in the first year will be restricted with narrow exceptions. You may need to hold your investment for an indefinite period of time. Unlike investing in companies listed on a stock exchange, where you can quickly and easily trade securities, you may have to locate an interested private buyer to resell your crowdfunded investment.

No voting rights. Investment instruments hosted on Republic are typically held via the Crowd SAFE, which does not provide voting rights to investors. Investors may receive voting rights if that instrument converts to stock, but crowdfunding investors’ voting rights will mostly likely be diluted when as the company raises additional funds.
Crowd Term Notes and Crowd Revenue Notes also typically do not provide voting rights (see here). In addition, crypto-assets typically do not have voting rights and owning a token will not give you influence over the token maker or seller. Stock purchase agreements and membership interests agreements may provide voting rights or may require you to proxy your voting rights to pre-determined third parties.

Cancellation restrictions. Under Regulation Crowdfunding, once you make an investment commitment, you can cancel the investment commitment at any time and for any reason up to 48 hours before the campaign deadline. Some campaigns may have multiple deadlines around rolling closes. Investors should pay attention to notices companies provide regarding rolling closes. Under Regulations A+, D and S, you traditionally have no cancellation restrictions and therefore your investment commitment is binding. Learn more.

Valuation and capitalization. No exchange or other secondary market is expected for securities sold under Regulation CF or Regulations D or S. Issuers fundraising are often early-stage startups and are unlikely to have substantial operating or financial histories. There is limited–if any–information for valuing securities offered through Republic and there is a substantial risk that the price of securities purchased on Republic may exceed their value and any amount for which they may eventually be resold. Furthermore, securities sold on Republic may provide investors with inferior terms than similar securities provided by a company in other offerings.

Limited disclosure. The issuer must disclose information about itself, its business plan, the offering, and its anticipated use of proceeds, among other things. It’s important to note that an early-stage company may be able to provide only limited information about its business plan and operations because it is still developing its operations. Depending on the way in which securities were offered and sold, the company may also not be obligated to file information regarding its business annually, including financial statements.

For Regulation CF, a company files a Form C with their disclosures, such disclosures are dictated by the SEC.

For Regulation A+ they file a Form 1-A, with disclosures dictated by the SEC which must be qualified by the SEC before sales may commence.

For Regulation D + S, the company provides a PPM (a private placement memorandum) or other documents at the issuer’s discretion to investors, but there are no specific rules or requirements.

Under certain circumstances, the issuer may cease to publish annual reports and investors may have no information rights under Regulations A+ and CF, no such reporting requirements exist under Regulations D and S.

Investment in personnel. An investment in a startup, early-stage venture or emerging technology company is also an investment in the founding entrepreneur(s) and/or the company’s management. Being able to execute on the business plan is an important factor in determining whether the business will be viable and successful. A portion of each investment may be used to fund salaries. Investors should carefully review any disclosure regarding the company’s use of funds.

Possibility of fraud. There is a risk that a company raising engage in fraud. There is no way to control the actions of a company once an offering ends.

Lack of professional guidance. Many successful issuers partially attribute their early success to the guidance of professional early-stage investors (e.g. angel investors and venture capital firms). These investors often negotiate for seats on the company’s board of directors and play an important role in providing additional resources, contacts and experience in assisting early-stage companies in executing on their business plans. An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.

Again, please be sure to review more extensive Risk Factors here.