Frequently Asked Questions (FAQs)
- A natural person with a net worth (or joint net worth with my spouse) that exceeds $1 million (excluding the value of the subscriber’s primary residence).
- A natural person with income in excess of $200,000 (or, combined with his or her spouse, in excess of $300,000) in each of the past 2 years and who expects to have such income in this year.
- A corporation, Massachusetts or similar business trust, partnership, or limited liability company with total assets in excess of $5 million.
- A self-directed individual retirement account the investment decisions for which are made by an accredited investor.
- A revocable trust, the grantor of which is an “accredited investor.”
- A sophisticated person, investing on behalf of a trust with assets in excess of $5 million.
- An entity in which all of the equity owners are “accredited investors.”
Additionally, you must understand how we work and the kinds of risks associated with our investing. Once you successfully apply, we will contact you to ensure these things are clear.
If you do not want to invest in any deal, you do not need to do anything. If you do wish to invest, you will need to review and execute a Subscription Agreement and Operating Agreement, and then send us the amount of money you wish to invest plus 1% to cover out-of-pocket expenses.
Once we have received the proceeds from the liquidity event in the pooled investment vehicle, which may be after a holding period of several months in the event of an IPO, we will return your money to you promptly, leaving a reasonable amount of time to make sure we are properly accounting for the individual distributions and carried interest.
Risk Inherent in Startup Investments
Investments in Startups involve a high degree of risk. Financial and operating risks confronting Startups are significant. While targeted returns should reflect the perceived level of risk in any investment situation, such returns may never be realized and/or may not be adequate to compensate an investor for risks taken. Loss of an investor’s entire investment is possible and can easily occur. Moreover, the timing of any return on investment is highly uncertain.
The Startup market is highly competitive and the percentage of companies that survive and prosper is small. Startup investments often experience unexpected problems in the areas of product development, manufacturing, marketing, financing, and general management, among others, which frequently cannot be solved. In addition, Startups may require substantial amounts of financing, which may not be available through institutional private placements, the public markets or otherwise.
A Startup is subject to all of the risks inherent in a new business enterprise. Acceptance of a Startup’s services and products is uncertain and no assurance can be given that it will be able to successfully achieve or sustain profitability. The limited financial and other historical data that is currently available impairs investors’ ability to fully evaluate whether a Startup will be able to fulfill its business strategy and plans. Investors should consider that Startups’ prospects are subject to the risks, expenses and uncertainties frequently encountered by companies in the early stage of their corporate life cycle in new and rapidly evolving markets.
Uncertainty in Startups’ Business Models
Because of a Startup’s limited history of operations, a Startup is unable to predict whether its business model will prove to be viable, whether demand for the Startup’s products and services will materialize at the prices it expects to charge, or whether current or future revenue streams and/or pricing levels will be sustainable. There can be no assurances a Startup will be able to achieve or sustain such revenue streams and/or pricing levels, the result of which could have a material, adverse effect on the Startup’s business, financial condition, and results of operations.
New Products and Services
Startups often derive a significant portion of their future revenue from sales of newly introduced products and services. The market for a Startup’s products and services often is characterized by rapidly changing technology, evolving industry standards, and changes in customer needs. If a Startup fails to modify or improve its products and services in response to changes in technology, industry standards or customer needs, its products and services could rapidly become less competitive or obsolete. A Startup often must make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance. If a Startup is unable to successfully develop and introduce competitive new products and services, and enhance its existing products and services, its future results of operations would be adversely affected.
Investment in Technologies
The value of an investor’s interests in Startups may be susceptible to factors affecting the technology industry and/or to greater risk than an investment in a vehicle that invests in a broader range of securities. Some of the many specific risks faced by such Startups include:
- Rapidly changing technologies;
- Products or technologies that may quickly become obsolete;
- Scarcity of management, technical, scientific, research and marketing personnel with appropriate training;
- The possibility of lawsuits related to patents and intellectual property;
- Rapidly changing investor sentiments and preferences with regard to technology sector investments (which are generally perceived as risky); and
- Exposure to government regulation, making these companies susceptible to changes in government policy and delays or failures in securing regulatory approvals.
A Startup Must Manage its Future Growth
A Startup’s ability to manage future growth effectively is paramount to the success of the Startup because its failure to do so could materially and adversely affect its business, financial condition, and results of operations. A Startup’s ability to successfully offer products and services and implement its business plan in a rapidly evolving market requires an effective planning and management process. Future expansion efforts, internally or through acquisitions, could be expensive and put a strain on the Startup’s management, financial, operational, and technical resources. To manage future growth effectively, a Startup must maintain and enhance financial and accounting systems and controls, as well as integrate new personnel and manage expanded operations. There can be no assurance that a Startup will be able to effectively manage its expanding operations. If a Startup is unable to manage growth effectively, its business, financial condition, and results of operations could be materially and adversely affected.
Changing Economic Conditions
The success of any investment activity is determined to some degree by general economic conditions. The availability, unavailability, or hindered operation of external credit markets, equity markets and other economic systems which an individual Startup may depend upon to achieve its objectives may have a significant negative impact on a Startup’s operations and profitability. The stability and sustainability of growth in global economies may be impacted by terrorism, acts of war or a variety of other unpredictable events. There can be no assurance that such markets and economic systems will be available or will be available as anticipated or needed for an investment in a Startup to be successful. Changing economic conditions could potentially, and frequently do, adversely impact the valuation of a Startup and its securities.
Difficulty in Valuing Startup Investments
It is enormously difficult to determine objective values for any Startup. In addition to the difficulty of determining the magnitude of the risks applicable to a given Startup and the likelihood that a given Startup’s business will be a success, there generally will be no readily available market for a Startup’s equity securities, and hence, an investor’s investments will be difficult to value.
Generally, an investor’s investment in a Startup will represent a minority stake in a privately held company. As is the case with minority holdings in general, such minority stakes will have neither the control characteristics of majority stakes nor the valuation premiums accorded majority or controlling stakes. Investors will be reliant on the existing management and board of directors of such Startups.
No Assurance of Additional Capital for Startups
Continued development and marketing of a Startup’s products or services, or administrative, legal, regulatory or other needs, may require that it obtain additional financing. Startups generally have substantial capital needs that are typically funded over several stages of investment. Such additional financing may not be available on favorable terms, or at all, which could adversely affect the ability of a Startup to grow or continue operations.
Absence of Liquidity and Public Markets
Investments in Startups are generally private, illiquid holdings. As such, there are no public markets for the securities held by a Startup investor, and no readily available liquidity mechanism at any particular time for any of the investments.