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Mr. Crowd University

Course 3:Considerations Before You Invest in Crowdfunding

1. Can you handle the risk and the potential loss of your investment?

Both are real possibilities when it comes to companies that issue securities using crowdfunding. The venture may not succeed. Startups and early-stage ventures can and do fail. You should be able to afford, and be prepared to lose, your entire investment. If you are risk-averse, are just starting to invest, have only a smaller capital to invest, or may need the money in the short term, crowdfunding investments are likely not for you.

2. Early-stage and startup investments involves a high degree of risk

You should be aware that early-stage investments may involve very high risks and you should research thoroughly any offering before making an investment decision. You should read and fully understand the information about the company and the risks that are disclosed to you before making any investment.

3. Early-stage and startup investments are speculative in nature

Investments in startups and early-stage ventures 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 or early-stage venture often relies on the development of a new product or service that may or may not find a market. You should be able to afford and be prepared to lose your entire investment.

4. Early-stage and startup investments are difficult to valuate

Your crowdfunding investment may purchase an equity stake in a startup. 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. In addition, there may be additional classes of equity with rights that are superior to the class of equity being sold through crowdfunding and your investments are subject to dilution.

5. Early-stage and startup investments are lack of illiquidity

You will be limited in your ability to resell your investment for the first year and 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 on a market, you may have to locate an interested buyer when you do seek to resell your crowdfunded investment.

6. Limited disclosure

An early-stage company may be able to provide only limited information about its business plan and operations because it does not have fully developed operations or a long history to provide more disclosure. The company is also only obligated to file information annually regarding its business, including financial statements. Although a company that offers securities pursuant to Regulation Crowdfunding is required to file offering statement and annual reports, the disclosure requirements are very limited and are not comparable to a publicly listed company.

For example, if a company that offers securities pursuant to Regulation Crowdfunding has filed one annual report and has fewer than 300 holders of record, the company will no longer be subjected to the annual reporting requirement. Therefore, you may have only limited continuing disclosure about your crowdfunding investment.

7. Possibility of fraud

In light of the relative ease with which early-stage companies can raise funds through crowdfunding, it may be the case that certain opportunities turn out to be money-losing fraudulent schemes. As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.

8. Investment in personnel

An early-stage investment is also an investment in the entrepreneur or management of the company. Being able to execute on the business plan is often an important factor in whether the business is viable and successful. You should also be aware that a portion of your investment may fund the compensation of the company's employees, including its management. You should carefully review any disclosure regarding the company's use of proceeds.

9. Cancellation and Reconfirmation of Investment

Cancellation of Investment You have up to 48 hours prior to the end of the offer period to change your mind and cancel your investment commitment for any reason. Once the offering period is within 48 hours of ending, you will not be able to cancel for any reason even if you make your commitment during this period.

You should also be aware that your investment commitment may be cancelled by the issuer, including but not limited to the following circumstances:

  1. You have exceeded your investment limit set forth by Regulation Crowdfunding;
  2. You are not in compliance with the "Know Your Customer" (KYC) or "Anti-Money Laundering" (AML) requirements;
  3. Any violation of our Terms Of Use;
  4. The issuer has withdrawn its crowdfunding offering.
Reconfirmation of Investment However, if the company makes a material change to the offering terms or other information disclosed to you, you will be given five business days to reconfirm your investment commitment.

10. Lack of professional guidance

Many successful companies 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 through their resources, contacts, and experience in assisting early-stage companies in execution of their business plans. However, an early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.

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IMPORTANT LEGAL NOTICE: Ksdaq Inc. owns and operates Mr. Crowd (www.MrCrowd.com), a funding portal (the "Funding Portal") registered with the Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA) [FINRA Funding Portal Members]. By accessing the Funding Portal and any pages on the Funding Portal, you agree to be bound by the Terms of Use and Privacy Policy, as may be amended from time to time without notice or liability. Securities offerings posted on the Funding Portal are limited to Regulation Crowdfunding offerings.

Investors must acknowledge and accept the high risks associated with investing in private securities offerings. These risks include holding your investment for periods of many years with limited ability to resell, limited access to periodic reporting, and losing your entire investment. You must have the ability to bear a total loss of your investment without a change in your lifestyle. Funding Portal is only required to conduct limited due diligence on each Issuer and does not in any way give investment advice, provide analysis or recommendations regarding any offering posted on the Funding Portal. Past performance is not indicative of future performance. All investors should make their own determination of whether or not to make any investment in an offering, based on their own independent evaluation and analysis and after consulting with their financial, tax and investment advisors. Prior to making any investment, you will be required to demonstrate your understanding of the speculative nature of investing in such private securities. The securities offered on this Funding Portal can only be marketed in jurisdictions where public solicitation of offerings are permitted; it is solely your responsibility to comply with the laws and regulations of your country of residence. You are strongly advised to consult your legal, tax and financial advisor before investing.

You can learn more about investing in crowdfunding from the SEC, FINRA or NASAA.

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