Per the regulations, Mainvest must have a reasonable belief that each business that launches on the platform does not raise a risk of fraud or otherwise raise an investor protection concern. This does NOT mean that offerings are free of risk, or that mainvest or any other entity endorses or recommends a particular investment, only that the offering and business owners behind it appear capable of managing investor funds and are not disqualified from conducting an offering under Regulation Crowdfunding.
The first step in the review process is for Mainvest staff to interact with the business owner through phone calls, emails, and assisting with preparation of documents. Mainvest staff look out for potential warning signs. Examples that can result in Mainvest denying a launch may include a lack of communication, missing or rounded financials, or an issue concerning social media activity.
Once the offering is reviewed by Mainvest staff, the next step is to go through what is called a "Bad Actor Check" or "BAC." The BAC is a limited background check, conducted through a reputable third party, of a business, its managers and officers, and any beneficial owner of more than 20% in the business. The BAC primarily focuses on regulatory disqualification provisions, which automatically bar an issuer from raising under Regulation Crowdfunding - a "Red Flag". The BAC can also show other publicly filed information, such as liens or lawsuits, that could impact a business's operations - a "Yellow Flag".
Yellow Flag BAC's can range from traffic tickets to lawsuits and so are reviewed on a case by case basis to determine if the report is accurate or if the flag raises an ongoing investor protection concern. Based on the compliance team's review, an offering may be prevented from launching, allowed to go forward with additional disclosures, or allowed to go forward with no changes.
Once an offering is launched, Mainvest continues to review any additional information as it becomes available, and reviews any negative information to determine if there is an investor protection concern or risk of fraud. While every offering contains risk, Mainvest's staff works diligently to make sure that each offering's risks are properly disclosed.
You can always read up on our vetting process when you’re considering investing here.