Know Before You Invest

Know Before You Invest

1. Know the Risks

Investing in startups is very risky. You should consider the risks involved in investing in crowdfunding to determine whether investing in crowdfunding securities is right for you and you should only invest an amount you can afford to lose completely without changing your lifestyle.

Important Risk Factors

Every investor (“Investor”) should be aware that an investment in a single company or multiple companies on VedasLabs platform (each, a “Issuer” or “Startup”) involves a high degree of risk, regardless of any assurance provided by the Issuer. There can be no assurance that (i) any information or projection by the Issuer has been validate or is reliable, (ii) an Issuer will achieve its business plan, or (iii) an Investor will receive a return of any part of its investment. The following considerations, among others, should be carefully evaluated before making an investment in an Issuer through its offering on VedasLabs.

 

Risk inherent in startup investments: An investment in a startup company involves a high degree of risk. An investor should be prepared for the possibility to lose all of its investment.

Speculative

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. 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.

Illiquidity

Your ability to resell your investment in the first year will be restricted with narrow exceptions. You 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, you may have to locate an interested private buyer to resell your crowdfunded investment. To learn more about the restriction on the reselling of private securities please read our FAQs and the SEC Restrictions on Reselling.

No Voting Rights and Dilution

Investors may not receive voting rights if they are receiving Preferred Equity. Further, it is likely that any voting rights a crowdfunding investor receives will be diluted when a company raises additional funds.

Investment in new concepts and technologies

The value of an Investor’s investment in startups may be susceptible to factors affecting the relevant 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.

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.

Future and past performance

The past performance of a startup or its management is not predictive of a startup’s future results. There can be no assurance that targeted results will be achieved. Loss of principal is possible, and even likely, on any given investment.

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.

Minority investments

A significant portion of an Investor’s investments will represent minority stakes in privately held companies. An Investor’s shares in a startup may be non-voting shares. Even with voting shares, 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 companies, which may include representatives of other financial investors with whom the Investor is not affiliated and whose interests may conflict with the interests of the Investor.

Lack of information for monitoring and valuing startups

The Investor may not be able to obtain all information it would want regarding a particular startup, on a timely basis or at all. It is possible that the Investor may not be aware on a timely basis of material adverse changes that have occurred with respect to certain of its investments. As a result of these difficulties, as well as other uncertainties, an Investor may not have accurate information about a startup’s current value.

No assurance of additional capital for startups

After an Investor has invested in a startup, continued development and marketing of the startup’s products or services, or administrative, legal, regulatory or other needs, may require that it obtain additional financing. In particular, 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.

Absence of liquidity and public markets

An Investor’s investments will generally be private, illiquid holdings. As such, there will be no public markets for the securities held by the Investor, and no readily available liquidity mechanism at any particular time for any of the investments.

Legal and regulatory risks associated with crowdfunding

There is no assurance that a startup will comply with all requirements mandated by federal laws permitting private company to fundraise from retail investors on a Title III crowdfunding portal such as VedasLabs, whether before, during or after its offering on VedasLabs.

Tax risks

There are many tax risks relating to investments in startups are difficult to address and complicated. You should consult your tax advisor for information about the tax consequences of purchasing equity securities of a startup.

Withholding and other taxes

The structure of any investment in a startup may not be tax efficient for any particular Investor, and no startup guarantees that any particular tax result will be achieved. In addition, tax reporting requirements may be imposed on Investors under the laws of the jurisdictions in which Investors are liable for taxation. Investors should consult their own professional advisors with respect to the tax consequences to them of an investment in a startup under the laws of the jurisdictions in which the Investors and/or the startup are liable for taxation.

Limited operating history of startups

A startup may be a newly formed entity with little or no operating history. Each offering should be evaluated on the basis that the startup’s business plan and projections may not prove accurate and that the startup will not achieve its objective. Past performance of a startup or its team is not predictive of future results.

Diverse investors

Investors and employees in a startup may have conflicting investment, tax, and other interests with respect to startup ownership, which may arise from the structuring of the startup or the timing of a sale of the startup or other factors. As a consequence, decisions made by the startup management on such matters may be more beneficial for some Investors than for others. Investors should be aware that startup management tends to consider the investment and tax objective of its shareholders as a whole when making decisions on investment structure or timing of sale, and not the circumstances of any Investor individually.

Lack of investor control

Investors in a startup will not make decisions with respect to the startup’s business and affairs.

Confidential information

Certain information regarding the startups will be highly confidential. Competitors may benefit from such information if it is ever made public, and that could result in adverse economic consequences to the Investors.

Forward-looking statements

The information a startups makes available to Investors may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. Examples of forward-looking statements include, but are not limited to, statements regarding: (i) the adequacy of a startup’s funding to meet its future needs, (ii) the revenue and expenses expected over the life of the startup, (iii) the market for a startup’s goods or services, or (iv) other similar matters. Each startup’s forward-looking statements are based on management’s current expectations and assumptions regarding the startup’s business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. The startup’s actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the startup’s actual results to differ materially from those in its forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors:

  • recent and future changes in technology, services and standards;
  • changes in consumer behavior;
  • changes in a startup’s plans, initiatives and strategies, and consumer acceptance thereof;
  • changes in the plans, initiatives and strategies of the third parties that are necessary or important to the startup’s success;
  • competitive pressures, including as a result of changes in technology;
  • the startup’s ability to deal effectively with economic slowdowns or other economic or market difficulties;
  • increased volatility or decreased liquidity in the capital markets, including any limitation on the startup’s ability to access the capital markets for debt securities, refinance its outstanding indebtedness or obtain equity, debt or bank financings on acceptable terms;
  • the failure to meet earnings expectations;
  • the adequacy of the startup’s risk management framework;
  • changes in U.S. GAAP or other applicable accounting policies;
  • the impact of terrorist acts, hostilities, natural disasters (including extreme weather) and pandemic viruses;
  • a disruption or failure of the startup’s or its vendors’ network and information systems or other technology on which the Company’s businesses rely;
  • changes in tax, federal communication and other laws and regulations;
  • changes in foreign exchange rates and in the stability and existence of foreign currencies; and<
  • other risks and uncertainties which may or may not be specifically discussed in materials provided to Investors.

Any forward-looking statement made by a startup speaks only as of the date on which it is made. Startups are under no obligation to, and generally expressly disclaim any obligation to, update or alter their forward-looking statements, whether as a result of new information, subsequent events or otherwise. The foregoing risks do not purport to be a complete explanation of all the risks involved in acquiring equity or debt securities in a startup. Each Investor is urged to seek its own independent legal and tax advice and read the relevant investment documents before making a determination whether to invest in a startup through VedasLabs.


2. Limited transfer

It may be difficult to transfer the securities acquired on VedasLabs. In addition, there are restrictions on selling, trading, or transferring the securities for the first 12 months. Learn more

Can I sell securities acquired on VedasLabs?

Because the startup company issuing the securities is private, you cannot sell your securities on the public market, making it potentially difficult to find a buyer. In fact, you are restricted from reselling your securities in the first 12 months post closing of the offering, unless the shares are transferred:

  • to the company that issued the securities
  • to an accredited investor
  • to a nuclear family member: a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.
  • in connection with your death, divorce, or other similar circumstance
  • to a trust controlled by you or a trust created for the benefit of a family member (defined as a child, sibling or parent of you or your spouse) or
  • as part of a later offering registered with the SEC.

Any transfer during this period is still subject to state and foreign laws. You should know that there may be no market for the securities after the initial 12 month restricted period. Once the 12 month restricted period ends, any sale or disposition of the securities you hold must comply with applicable federal, state and foreign laws. It is important that you only invest capital with the expectation of holding your investment for an indefinite period of time, and with the real risk of a total loss of your investment in mind. Only invest an amount you can afford to lose without changing your lifestyle.


3. Diversification

Crowdfunding investing is highly speculative and every investment may result in a loss. By investing small amounts across multiple deals, you can reduce your risk compared to a large investment in a single company.


4. Cancellation

Investments can be cancelled up to 48 hours before the company’s pre-set funding deadline. After that, your investment will be final, and you will not be able to get your money back.

Companies reserve the right to reject, in whole or in part, any investment commitment at any time before the proceeds are drawn from the escrow account. Any rejected investments will be returned to the investor in full.


5. Investing Limits

The amount of each individual can invest in a 12 month period is based on net worth and annual income. Generally investors are limited to $2,200 per year — depending on their net-worth and income, this limit may go up to $107,000 — across all Title III offerings. For a complete overview please visit the SEC Investor Alerts and Bulletin for Regulation Crowdfunding.


6. Research

Do your own research. Read the documents provided by each company. Get independent legal, accounting, financial advice. If you have any questions or need more information, ask the company in the discussion section.


7. Commission, and Types of Securities

Commission

VedasLabs charges a fixed administrative fee of up to $5,000 and a transaction fee of 7% of capital raised to issuers.

Types of Securities

On VedasLabs, you will find two types of securities: common equity and preferred equity. For both types of equity you own part of the company in which you’re investing. Note that your shares are subject to dilution should the issuer decide to issue more shares in a later round.

Understanding Preferred Equity vs. Common Equity

Preferred Equity – Represents ownership in a company but has no voting rights when it comes to electing a board of directors or voting on the future of the company. In a liquidation, preferred stockholders have a greater claim to a company’s assets and earnings over common stock holders.

Common Equity – Represents ownership in a company with voting rights when it comes to electing a board of directors or voting on the future of the company. In a liquidation, preferred stockholders have a greater claim to a company’s assets and earnings over common stock holders.


8. Disclosures to VedasLabs

The company must disclose information about itself, its business plan, the offering, and its anticipated use of proceeds, among other things. The type of financial information disclosed may vary based on the amount being raised or whether the company has previously conducted a crowdfunding offering.

It’s important to note that an early-stage company may only be able to provide limited information about its business plan and operations because it is still developing its operations.

Prior to being listed on VedasLabs, companies are required to disclose the following information:

  • Pitch Deck (if available)
  • Business Description
  • Funding Goal
  • Funding Deadline
  • Use of Funds
  • Information on the Officers and Directors
  • Financial Information
  • Specific risks to the Company
  • Current Traction

9. Ongoing Disclosures to Investors

The company must disclose information about itself, its business plan, the offering, and its anticipated use of proceeds, among other things. The type of financial information disclosed may vary based on the amount being raised or whether the company has previously conducted a crowdfunding offering.

$107,000 or less – financial statements and certain specific line items from income tax returns are required, both of which are certified by the principal executive officer of the company.

$107,000.01 to $535,000 – financial statements are reviewed by an independent public accountant and the accountant’s review report is provided as well as certification by the principal executive officer of the company. A review is some level of scrutiny of the financials by a CPA.

$535,000.01 to $1.07 million – if first time crowdfunding, then financial statements reviewed by an independent public accountant and the accountant’s review report if available are disclosed: otherwise financial statements audited by an independent public accountant and the accountant’s audit report must be prepared and disclosed. An audit provides a higher level of scrutiny by the accountant than a review as well as some verification by the accountant.

It’s important to note that an early-stage company may only be able to provide limited information about its business plan and operations because it is still developing its operations.

Prior to being listed on VedasLabs, companies are required to disclose the following information:

  • Pitch Deck (if available)
  • Business Description
  • Funding Goal
  • Funding Deadline
  • Use of Funds
  • Information on the Officers and Directors
  • Financial Information
  • Specific risks to the Company
  • Current Traction

Once an offering has closed, the company shall provide updates to investors on the results of its operations and financial progress through its website on an annual basis. These updates are often less regular and less detailed than those provided by public companies to their shareholders. Under certain circumstances the company may cease to publish annual reports and investors may have no information rights and there is no guarantee the company will retain any relationship with VedasLabs following the end of their round.


10. Changing of Deal Terms

If there are any material changes to the offering information while the campaign is running, they are required to notify investors reconfirm their investment. Investors will have 5 business days after the confirmation request is sent to respond.

Investments that are not confirmed after 5 business days will be cancelled and refunded. Any future funding towards the campaign will be considered a new investment.