Security Campaign Builder - 9 - Offering Statement - General Info
The information you input into the Offering Statement contains much of the same information disclosed to investors in a traditional long-form offering statement. The Umergence Offering Statement builder is meant to be a short form supplement to your existing offering statement that would be crafted by your company and its legal counsel.
The first question of the Offering statement builder requests certification that you are eligible to conduct a security offering through Regulation CF. If you are using Regulation CF (Form C), read this certification carefully before checking the box. If you are not using Regulation CF (Form C) to conduct your offering, you may still need to check the box to continue, but it has no bearing on your campaign and will not be displayed after you complete the builder.
The next question also pertains only to Regulation CF (Form C) campaigns. If you are utilizing Regulation CF (Form C), you can learn more about Rule 202 here.
If you are NOT utilizing Regulation CF (Form C), check “No” to continue.
All Principal Security Holders should be disclosed to investors. A Principal Security Holder refers to any party who is the beneficial owner of 20% or more of the issuer’s outstanding voting equity securities. This is calculated on the basis of voting power. If a security holder does not control over 20% of the voting power in the company, their name does not need to be listed here, but if you are a small startup with only a few founders, it will be good practice to disclose the founders’ stakes here.
In addition to the founders of the company, all Principal Security Holders will undergo “Bad Actor Checks” once the campaign is submitted for review. A Bad Actor Check is a sort of background check in the securities industry. If any Director, Officer, or Principal Security Holder connected to the offering is found to be a Bad Actor, it could put the offering in jeopardy. You can learn more about what gets screened for in a Bad Actor check and how it relates to securities offerings here.
The Business and Anticipated Plan is meant to be a more detailed description of the business and plan than the short description given when creating the company profile. Give special attention to how the business or project makes money or will (without making any promises or guarantees). Describe your products and services, as well as any intellectual property you own. The sections of a Umergence Idea page can be used as a guideline for a business plan. Consider at least a paragraph focusing on each of the following – Problem, Solution, User/Customer base, Unique Value Proposition, Channels/Partners for distribution and reaching customers, Cost Structure, Revenue, Success Metrics/Milestones. Don’t make it TOO long, but provide real detail. You can expand this text input box by clicking and dragging in the bottom right corner to make it easier to see what you’re editing. You will also be able to attach a longer form business plan to your campaign as a supplemental document later in the builder.
The Risk Factors are a very important section of a campaign and should be carefully created between the company and its legal counsel. There is no upside in leaving omissions. Investors and regulators highly value disclosure and transparency. Try to make this section meaningful and not just boilerplate disclosures.
Below is an example of some generic risk disclosures highlighting a few factors that could be relevant to a security offering by a private company:
(i) Speculative Investment - The purchase of private company stock is speculative and involves substantial risk. It is impossible to predict accurately the results to an investor from an investment in the Company, as its business is new and because of general market uncertainty. An investment in the Company should be considered a speculative investment. There is no guarantee that the Company will earn a profit either from the management and operation of the Company or from their sale. There is no assurance that an investor’s capital will be returned. Each investor is encouraged to individually evaluate the risks and benefits of the investment and to make an investment decision based on his or her own evaluation. Investors are advised and encouraged to obtain independent counsel regarding the legal, financial, and tax consequences of the investment before investing.
(ii) Not Subject to Sarbanes Oxley - The Company is not subject to Sarbanes-Oxley regulations and may lack the financial controls and procedures of public companies. The Company may not have the internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes Oxley Act of 2002. As a privately-held (non- public) Company, the Company is currently not subject to the Sarbanes Oxley Act of 2002, and it’s financial and disclosure controls and procedures reflect its status as a development stage, non-public company. There can be no guarantee that there are no significant deficiencies or material weaknesses in the quality of the Company’s financial and disclosure controls and procedures. If it were necessary to implement such financial and disclosure controls and procedures, the cost to the Company of such compliance could be substantial and could have a material adverse effect on the Company’s results of operations
(iii) Startup Investment Risk - Investments in small businesses and start-up companies are often risky. The Company’s management may be inexperienced and investors will not be able to evaluate the Company’s operating history. Small businesses may also depend heavily upon a single customer, supplier, or employee whose departure would seriously damage the company’s profitability. The demand for the company’s product may be seasonal or be impacted by the overall economy, or the company could face other risks that are specific to its industry or type of business. The Company may also have a hard time competing against larger companies who can negotiate for better prices from suppliers, produce goods and services on a large scale more economically, or take advantage of bigger marketing budgets. Furthermore, a small business could face risks from lawsuits, governmental regulations, and other potential impediments to growth.
(iv) State and Federal Security Laws - The securities being offered (which include any future stock or tokens, collectively the “Securities”) have not been registered under the Securities Act of 1933 (the “Securities Act”), in reliance, among other exemptions, on the exemptive provisions of article 4(2) of the Securities Act and Regulation D under the Securities Act. Similar reliance has been placed on apparently available exemptions from securities registration or qualification requirements under applicable state securities laws. No assurance can be given that any offering currently qualifies or will continue to qualify under one or more of such exemptive provisions due to, among other things, the adequacy of disclosure and the manner of distribution, the existence of similar offerings in the past or in the future, or a change of any securities law or regulation that has retroactive effect. If, and to the extent that, claims or suits for rescission are brought and successfully concluded for failure to register any offering or other offerings or for acts or omissions constituting offenses under the Securities Act, the Securities Exchange Act of 1934, or applicable state securities laws, the Company could be materially adversely affected, jeopardizing the Company’s ability to operate successfully. Furthermore, the human and capital resources of the Company could be adversely affected by the need to defend actions under these laws, even if the Company is ultimately successful in its defense. Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.
(v) Unregistered Securities - The Securities will not be registered, and no one has passed upon either the adequacy of the disclosure contained herein or the fairness of the terms of the offering. No governmental agency has reviewed the offerings posted in this document and no state or federal agency has passed upon either the adequacy of the disclosure contained herein or the fairness of the terms of any offering. The exemptions relied upon for such offerings are significantly dependent upon the accuracy of the representations of the Investors to be made to the Company in connection with the offering. In the event that anysuch representations prove to be untrue, the registration exemptions relied upon by the Company in selling the securities might not be available and substantial liability to the Company would result under applicable securities laws for rescission or damages.
(vi) Lack of Liquidity - There has been no public or private market for the Securities, and there can be no assurance that any such market would develop in the foreseeable future. There is, therefore, no assurance that the securities can be resold at all, or near the offering price. You will be required to represent that it is acquiring such securities for investment and not with a view to distribution or resale, that it understands that the securities are not freely transferable and, in any event, that it must bear the economic risk of an investment in the securities for an indefinite period of time because the securities have not been registered under the Act or applicable state Blue Sky or securities laws. The securities cannot be resold unless they are subsequently registered or an exemption from registration is available. There is no active trading market for the securities being offered and no market may develop in the foreseeable future for any of such securities. Further, there can be no assurance that the Company will ever consummate a public offering of any of the Company’s securities. Accordingly, investors must bear the economic risk of an investment in the securities for an indefinite period of time. Even if an active market develops for such securities, Rule 144 promulgated under the Securities Act (“Rule 144”), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, for resales of securities acquired in a non public offering without having to satisfy such registration requirements, a six-month holding period following acquisition of and payment in full for such securities assuming the issuer of such securities has filed periodic reports with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for a period of 90 days prior to the proposed sale. If the issuer of such securities has not made such filings, such securities will be subject to a one-year holding period before they can be resold under Rule 144. There can be no assurance that the Company will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning the Company, as is required by Rule 144 as part of the conditions of its availability. Accordingly, you should be prepared to hold the securities acquired in such offerings indefinitely and cannot expect to be able to liquidate any or all of their investment even in case of an emergency. In addition, any proposed transfer must comply with restrictions on transfer imposed by the Company and by federal and state securities laws. The Company may permit the transfer of such securities out of a subscriber’s name only when his or her request for transfer is accompanied by an opinion of counsel reasonably satisfactory to the Company that neither the sale nor the proposed transfer results in a violation of the Securities Act or any applicable state securities or “blue sky” laws. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL EVER FILE A REGISTRATION STATEMENT TO REGISTER SUCH SECURITIES, THAT SUCH REGISTRATION STATEMENT WILL BECOME EFFECTIVE, OR THAT ONCE EFFECTIVE, SUCH EFFECTIVENESS WILL BE MAINTAINED.
(vii) Limited Operating History - The Company has limited operating history. The Company is still in an early phase, and is just beginning to implement its business plan. There can be no assurance that it will ever operate profitably.
(viii) Additional Capital May Be Needed - The Company may need additional capital, which may not be available. The Company may require funds in excess of its existing cash resources to fund operating deficits, develop new products or services, establish and expand its marketing capabilities, and finance general and administrative activities. Due to market conditions at the time the Company may need additional funding, or due to its financial condition at that time, it is possible that the Company will be unable to obtain additional funding as and when it needs it. If the Company is unable to obtain additional funding, it may not be able to repay debts when they are due and payable. If the Company is able to obtain capital it may be on unfavorable terms or terms which excessively dilute then-existing equity holders. If the Company is unable to obtain additional funding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.
(ix) Offering Price - The offering price of the securities have been arbitrarily determined and may not be indicative of its actual value or future market prices. The offering price was not established in a competitive market, but was determined by the Company.
(x) Management Discretion - The Company’s management may have broad discretion in how the Company use the net proceeds of an offering. Unless the Company has agreed to a specific use of the proceeds from an offering, the Company’s management will have considerable discretion over the use of proceeds from their offering. You may not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately.
(xi) Operations and Growth - The Company may not be able to manage its potential growth. For the Company to succeed, it needs to experience significant expansion. There can be no assurance that it will achieve this expansion.
(xii) Competition - The Company faces significant competition. The Company faces competition from other companies, some of which might have received more funding than the Company has. One or more of the Company’s competitors could offer services similar to those offered by the Company at significantly lower prices, which would cause downward pressure on the prices the Company would be able to charge for its services. If the Company is not able to charge the prices it anticipates charging for its services, there may be a material adverse effect on the Company’s results of operations and financial condition. In addition, while the Company believes it is well-positioned to be the market leader in its industry, the emergence of one of its existing or future competitors as a market leader may limit the Company’s ability to achieve national brand recognition, which could also have a material adverse effect on the Company’s results of operations and financial condition.
(xiii) Market Acceptance - The Company’s growth relies on market acceptance. While the Company believes that there will be significant customer demand for its products/services, there is no assurance that there will be broad market acceptance of the Company’s offerings.
(xiv) Corporate Governance - Because the Company’s founders, directors and executive officers may be among the Company’s largest stockholders, they can exert significant control over the Company’s business and affairs and have actual or potential interests that may depart from those of subscribers in the offering. Additionally, the holdings of the Company’s directors and executive officers may increase in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted or if they otherwise acquire additional interest in the Company. The interests of such persons may differ from the interests of the Company’s other stockholders, including purchasers of securities in the offering. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders, including purchasers in the offering, may vote, including the following actions: to elect or defeat the election of the Company’s directors; - to amend or prevent amendment of the Company’s Certificate of Incorporation or By-laws; - to effect or prevent a merger, sale of assets or other corporate transaction; and - to control the outcome of any other matter submitted to the Company’s stockholders for vote. Such persons’ ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce the Company’s stock price or prevent the Company’s stockholders from realizing a premium over the Company’s stock price.
(xv) Financial Statements - The Company may not have audited financial statements nor is it required to provide investors with any annual audited financial statements or quarterly unaudited financial statements. In addition, the Company is not required to provide investors in the offering with financial information concerning the Company to which the investors may use in analyzing an investment in the Company. Therefore, your decision to make an investment in the Company must be based upon the information provided to the investors in its private placement documents without financial statement information and therefore, the limited information provided herewith with which investors will make an investment decision may not completely or accurately represent the financial condition of the company. Furthermore, as a non-reporting SEC company, the Company is not required to provide you with annual audited financial statements or quarterly unaudited financial statements.
This tutorial continues for the next section of the campaign builder here.