What are the risks associated with digital asset offerings?
Investments are risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision.
- Speculative. Investments in startups, early-stage ventures, and emerging technology companies 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, early-stage venture, or emerging technology company often relies on developing a new product or service that may or may not find a market. You should be prepared to lose your entire investment.
- Illiquidity and selling restrictions. If you are a US investor, your ability to resell your investment in the first year will be restricted with narrow exceptions. There may also be additional investment tranches, and you may be expected to have increased restrictions. You may need to hold your investment for an indefinite period. Unlike investing in companies listed on a stock exchange, where you can quickly and easily trade securities, you may have to locate an interested private buyer to resell your crowdfunded investment. To learn more, review theselling restrictions.
- Voting rights restrictions. Depending on the token that is being issued, there may be restrictions on voting rights. For example, investment instruments hosted on Republic are typically held via the Crowd SAFE, which does not provide voting rights to investors. Investors may receive voting rights if that instrument converts to stock, but crowdfunding investors' voting rights will likely be diluted when the company raises additional funds. In addition, crypto-assets typically do not have voting rights, and owning a token will not influence you over the token maker or seller.
- Cancellation restrictions. Depending on the regulatory exemption associated with the offering, your ability to cancel your investment may be limited. For Reg CF, once you invest, you can cancel the investment at any time and for any reason up to 48 hours before the campaign deadline.
- Valuation and capitalization. There is limited–if any–information for valuing securities offered through Republic, and there is a substantial risk that the price of securities purchased on Republic may exceed their value and any amount for which they may eventually be resold. Furthermore, securities sold on Republic may provide investors with inferior terms than similar securities provided by a company in other offerings.
- Limited disclosure. The company must disclose information about itself, its business plan, the offering, and its anticipated use of proceeds, among other things. It's important to note that an early-stage company may provide only limited information about its business plan and operations because it is still developing its operations. The company is also only obligated to file information regarding its business annually, including financial statements. Under certain circumstances, the company may cease to publish annual reports, and investors may have no information rights.
- Investment in personnel. An investment in a startup, early-stage venture, or emerging technology company, is also an investment in the founding entrepreneur(s) and the company's management. Executing the business plan is an essential factor in determining whether the business will be viable and successful. A portion of each investment may be used to fund salaries. Investors should carefully review any disclosure regarding the company's use of funds.
- Possibility of fraud. There is a risk that a company raising on Republic engages in fraud. Republic vets the companies we host, but there is no way to control the actions of a company once a campaign ends, and Republic cannot verify everything.
- Lack of professional guidance. Many successful companies partially attribute their early success to the direction 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 essential role in providing additional resources, contacts, and experience in assisting early-stage companies in executing their business plans. An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.
Note: Please be sure to review more extensive Risk Factors here and refer to the deal terms and conditions.