This document is intended to help explain:
What we do, and how we do it.
The process for buying securities through our Funding Portal.
The limitations on the amounts you may invest.
Your right to cancel your investment commitment.
The circumstances in which the issuer may cancel your investment commitment.
The risks associated with investing in the securities sold through our Funding Portal.
The kinds of securities that may be offered on our Funding Portal and some of the risks associated with each type.
Restrictions on your right to sell securities you purchase on our Funding Portal.
The information “issuers” (companies raising money on our Funding Portal) are required to disclose to you, and when and how often you can expect such information.
Our relationship with the issuers on our Funding Portal, including information about the compensation we will receive from them.
We expect to update this document from time to time.
What you should consider first
Investing in the companies that will be offered on our Site is very different than investing in the public stock market. The companies at our Site are likely to be small, with limited or no track records and little profits, if any.
With those caveats, and even in view of the risks listed in the “Risks of Investing” section below, we believe that the companies on our Site will offer worthwhile opportunities both to earn interest on your money and to invest in businesses you know and care about. With that said, what we believe doesn’t matter. The first thing for you to consider, before you go further, is whether it is appropriate for you to invest in any of these companies based on your own personal circumstances. Among the questions you should ask yourself are:
Can I afford to lose all the money I invest?
If I lose all or part of my money, will I be okay psychologically?
Do I understand the company I am thinking about investing in? Do I understand its product or service? Am I personally familiar with that market?
Do I understand the business the company is conducting? Do I understand how the company can make money?
Do I understand the Security I’m buying?
Do I trust the owners and managers of the company?
Do I understand the documents I’m being asked to sign?
Do I feel comfortable making this decision myself? If not, have I consulted with an advisor?
Only if you can truthfully answer “Yes” to all those questions should you invest.
These definitions apply throughout this Investor Education Package:
Site - Our Internet site located at www.MainVest.com.
Platform - Another word we use to refer to our Internet site.
Issuer - A company trying to raise money from investors on our Site, by selling its Securities.
Security - A share of stock, a promissory note, a bond, or any other instrument offered by an Issuer on our Site.
Title III - Title III of the JOBS Act of 2012, which allows “Regulation Crowdfunding.”
Funding Portal - A term used to describe Internet sites that are allowed to offer and sell Securities under Title III. We are a Funding Portal.
SEC - The U.S. Securities and Exchange Commission. The website: www.sec.gov.
FINRA - The Financial Industry Regulatory Authority. The website: www.finra.org.
What We do
We are a “Funding Portal.” We are registered with the SEC and with FINRA to act as an intermediary in Securities that are offered and sold under Title III.
While similar, being a Funding Portal isn’t the same as being a registered “broker-dealer.” We are not a registered broker-dealer.
Think of us (and every other Funding Portal) as a marketplace, or a shopping mall, bringing together companies and investors. When you invest, you are not investing in us or in any entity affiliated with us. You are investing in a third-party business that has chosen to raise money using our marketplace.
As an intermediary, or marketplace, we do not guarantee any particular outcome and are not responsible for what happens to your investment – all investments are undertaken at your own risk. We also do not guarantee the accuracy of the information you receive from issuers. Our job is to facilitate investments and help ensure that transactions between investors and issuers meet legal requirements.
What We Do
Select which Issuers to list on our platform, by among other things:
Conducting background checks on the issuer and its principals
Conducting due diligence to have a reasonable basis for believing the issuer is complying with all of its obligations
Conducting due diligence to have a reasonable basis for believing the issuer has established a means to keep accurate records of the holders of its securities
Advise Issuers about their offerings, and help prepare offering documents
Screen investors to ensure that they satisfy applicable per-investor limits (discussed below)
Provide communication channels between you and the Issuer, and between you and other potential investors, where you can ask questions and exchange information
Provide search functions or other tools for investors
Provide you with educational materials to help you assess the risks of investing (e.g., this document)
Keep records of investor communications and materials
What We Don’t Do
Offer investment advice or recommendations
Guarantee any particular investment outcome
Speak to investors about the merits of any particular company or offering
Our Relationship with Issuers
Issuers will pay us to be on our Funding Portal. They might pay us flat fees, commissions based on the amount of money they raise, or in other ways. They might also pay us for specified services we provide to them, and reimburse us for expenses we incur on their behalf. For each offering you invest in, we will disclose our compensation.
In some cases, an Issuer might pay us in whole or in part with its own Securities, e.g., with its own promissory note. This will always be the same class of Security that is being offered to investors on our Platform. For example, if the issuer is offering common stock to investors, only common stock could be used for our compensation.
We will never own any financial interest in Issuers listed on our Funding Portal other than Securities we receive from them as compensation.
After an offering is complete, we might or might not have an ongoing relationship with the Issuer. The Issuer may decide to use our Funding Portal to raise money in the future, or use services provided by (and pay compensation to) entities affiliated with us.
We will maintain online communications channels –chat rooms, basically – where you can communicate with other investors and with the Issuer. All discussions on the chat rooms will be open to the public, but only investors who have registered with us are allowed to post. Representatives of the Issuer, and anyone engaged in promoting the offering, must clearly identify themselves as such. The chat room is where you can ask questions about investment opportunities that interest you.
We, the Funding Portal, generally aren’t allowed to participate in the chat room, except to establish guidelines and remove potentially abusive or fraudulent content.
How we screen and don't screen issuers
Under regulations issued by the SEC, we are required to:
Have a “reasonable basis” for believing that every Issuer on our Platform is eligible to offer its Securities on our Platform, and is complying with Title III. We might perform our own due diligence, but we are generally allowed to rely on the representations of the Issuer.
Have a “reasonable basis” for believing that every Issuer on our Platform has established means to accurate records of the holders (owners) of its Securities. Again, we might perform our own due diligence, but we are generally allowed to rely on the representations of the Issuer.
Deny access to the Platform to any Issuer if:
We have a “reasonable basis” for believing that an Issuer or any of its officers, directors, or beneficial owner of 20% or more of its outstanding voting securities is subject to disqualification under the rules discussed under “Disqualification of Issuers” below. We are not allowed to rely solely on the Issuer’s representations to form this “reasonable belief,” but must conduct background checks with third parties.
We have a “reasonable basis” for believing that the Issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection, or we can’t effectively assess the risk.
We will comply with all of those requirements. But – and this is very important – we are not required to conclude that Issuers on our Platform represent good investments for investors. In fact, we are not even allowed to tell you if we think that one Issuer is a better investment than another Issuer. You have to make those decisions on your own.
Disqualification of Issuers
Title III may not be used if the Issuer or certain other people have been the subject of certain disqualifying events during the last 10 years.
The “certain other people” are:
Any predecessor of the Issuer;
Any director, officer, general partner, or manager of the Issuer;
A person owning 20% or more of the Issuer’s voting power;
Any promoter associated with the Issuer;
Any person who will be paid for soliciting investors; and
Any general partner, director, officer, or manager of such a solicitor.
The “certain disqualifying events” include a long list of events, all involving improper actions in the securities business – for example, the conviction of a felony or misdemeanor in connection with the purchase or sale of any security, or the loss of license of a securities broker for misconduct. As explained above, we will conduct background checks before allowing an Issuer to list on our Platform.
The kinds of securities we will offer
Issuers have the option to offer several types of securities on our Platform. Sometimes the securities are familiar debt or equity instruments, like a term loan or a share of stock, but issuers may choose from a wide range of innovative securities for their offering. For example, on our Platform, issuers may currently offer the following types of securities:
Debt Securities: Specifically, promissory notes. The promissory notes will require the Issuer to pay your money back, plus interest at a specified rate, over a specified time period. Owning a promissory note does not make you an owner of the company. Instead, you are a creditor. As long as the company has enough money to repay your loan, plus any interest you’ve been promised, the value of your security stays the same; the fluctuations of the fortunes of the company don’t affect you, unless the fortunes go way down. On the other hand, you don’t share in the appreciation if things go well. If the company increases in value 100-fold, you just have the right to get your money back, plus interest.
Revenue-Sharing Notes: A regular promissory note requires the Issuer make specified payments of interest and principal at specified times. In contrast, a revenue-sharing note requires the Issuer to pay a specified percentage of its revenue. For example, a revenue-sharing note might require the Issuer to pay investors 5% of its revenue for four years. Typically, a revenue-sharing note will also state a maximum that investors are entitled to receive (e.g., double their investment) and a due date for repayment of the original investment.
Equity-alternative Revenue (EaRN) Note: An EaRN Note is like a regular revenue-sharing note, but with a longer term and more potential upside for the investor. An EaRN Note consists of two primary phases. In Phase 1, the issuer pays back a percentage of its revenue until a maximum cap is hit, at which point, the Phase 2 percentage kicks in and the issuer pays back a lower percentage of revenue until a specified maturity date.
Equity Securities: When you buy an “equity security,” like the common stock of a corporation, you become an owner of the company. The value of your interest fluctuates with the fortunes of the company; if the company does well the value of your interest goes up, while if it does poorly the value goes down, possibly all the way to zero. As an owner, you generally have the right to share in any profit distributions made by the company, and you also share in the appreciation in the value of the company. Owning an equity security in a company is like owning a house, both the good part and the bad part. When a company dissolves, the owners of the equity securities are paid last, after all the creditors.
“Preferred” Equity Securities: In some cases, a company will offer a “preferred equity security,” like the preferred stock of a corporation. Typically, the holders of the preferred equity security have a right to receive distributions before the holders of the regular equity securities. For example, the holders of a preferred stock might have the right to receive a 4% dividend before dividends are paid to the holders of common stock. But preferred equity is still equity. The holders of preferred equity are paid after creditors.
Convertible Securities: Some securities, which we call “convertible securities,” start out as one kind of security but can be changed – converted – into a different kind of security. For example, a company might issue a debt security that can be converted by the holder into common stock at some specified time. Sometimes the conversion is triggered at the option of the holder, sometimes at the option of the company, and other times upon the occurrence of a specified event.
In the future, we might offer other kinds of Securities, including:
Hybrid Securities: Some securities, which we call “hybrid securities,” have characteristics of both equity securities and debt securities.
Callable Securities: Any kind of security can also be a “callable security,” meaning it can be “called,” or redeemed (bought back) by the company (for a debt security this is equivalent to an issuer having the option to prepay a loan prior to its maturity).
Other Kinds of Securities: The possible kinds of securities are limited only by the imaginations of financial needs of companies, investors, and lawyers.
When you review the opportunities at the Site, each opportunity will explain what kind of Security is being offered.
Limits on how much you may invest
Title III limits how much you can invest every year – not only in any one company, or through any one Funding Portal, but also in all companies through all Funding Portals. These limits apply only to your investments under Title III (Regulation Crowdfunding), however.
Specifically, the maximum amount you can invest in all Title III offerings during any period of 12 months is:
If your annual income or net worth is less than $107,000, you may invest the greater of:
5% of the greater of your annual income or net worth.
If your annual income and net worth are both at least $107,000, you can invest:
10% of the greater of your annual income or net worth.
If you are an "Accredited Investors" you do not have a limit on what you may invest.
These limits are adjusted periodically by the SEC, based on inflation.
You and your spouse may combine your incomes and assets for purposes of determining how much you may invest, although if you do so, you will be treated as a single investor for purposes of determining how much either of you may invest.