How we work (for investors)
Regulation Crowdfunding (Reg CF) Educational Materials
This Investor Education Package is intended to provide you with important information about investing through our Funding Portal. Before investing, you should carefully review and understand this information. If you don’t understand something or have a question, please contact us via email at hello@smallchange.co.
This Investor Education Package applies only to offerings made under Title III of the JOBS Act. It does not apply to offerings made under Title II of the JOBS Act.
This document is intended to help explain:
- What we do, and how we do it.
- The process for buying securities through our Funding Portal.
- The limitations on the amounts you may invest.
- Your right to cancel your investment commitment.
- The circumstances in which the issuer may cancel your investment commitment.
- The risks associated with investing in the securities sold through our Funding Portal.
- The different types of securities that may be offered on our Funding Portal and some of the risks associated with each type.
- Restrictions on your right to sell securities you purchase on our Funding Portal.
- The information “issuers” (companies raising money on our Funding Portal) are required to disclose to you, and when and how often you can expect such information.
- Our relationship with the issuers on our Funding Portal, including information about the compensation we will receive from them.
- We expect to update this document from time to time.
What you should consider first
Investing in the companies that will be offered on our Site is very different than investing in the public stock market. The companies at our Site are likely to be small, with limited or no track records, unproven business models, little profits or even revenue, and managed by individuals with limited experience managing successful businesses.
With all those caveats, and even in view of the risks listed in the “Risks of Investing” section below, we believe that the companies on our Site will offer excellent opportunities, both to make money and to invest in things you know and care about. But what we believe doesn’t matter. The first thing for you to consider, before you go further, is whether it is appropriate for you to invest in any of these companies based on your own personal circumstances. Among the questions you should ask yourself are:
- Can I afford to lose all the money I invest?
- Do I understand the company I am thinking about investing in? Do I understand its product or service? Am I personally familiar with that market?
- Do I understand the business the company is conducting? Do I understand how the company can make money?
- Do I understand the Security I’m buying?
- Do I trust the owners and managers of the company?
- Do I understand the documents I’m being asked to sign?
- Have I asked my advisors for help evaluating the investment?
- If I lose all or part of my money, will I be okay psychologically? Will I get depressed?
- Only if you can truthfully answer Yes to all those questions should you invest.
Definitions
These definitions apply throughout this Investor Education Package:
Site: Our Internet site is located at www.smallchange.co.
Platform: Another word we use to refer to our Internet site.
Issuer: A company trying to raise money from investors on our Site, by selling its Securities.
Security: A share of stock, a promissory note, a bond, or any other instrument offered by an Issuer on our Site.
Title III: Title III of the JOBS Act of 2012, which allows “Regulation Crowdfunding.”
Funding Portal: A term used to describe Internet sites that are allowed to offer and sell Securities under Title III. We are a Funding Portal.
SEC: The U.S. Securities and Exchange Commission.
FINRA: The Financial Industry Regulatory Authority.
Accredited Investor:
- A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
- A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;
- A trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person;
- A business in which all the equity owners are Accredited Investors;
- An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- A bank, insurance company, registered investment company, business development company, or small business investment company;
- A charitable organization, corporation, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets exceeding $5 million; and
- A director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that issuer.
What we do
We are a “Funding Portal.” We are registered with the SEC and with FINRA to act as an intermediary in Securities that are offered and sold under Title III.
While similar, being a Funding Portal isn’t the same as being a registered “broker-dealer.” We are not a registered broker-dealer.
Think of us (and every other Funding Portal) as a marketplace, or a shopping mall, bringing together companies and investors. When you invest, you are not investing in us or in any entity affiliated with us. You are investing in a third-party business that has chosen to raise money using our marketplace.
As an intermediary, or marketplace, we do not guarantee any particular outcome and are not responsible for what happens to your investment – all investments are undertaken at your own risk. We also do not guarantee the accuracy of the information you receive from issuers. Our job is to facilitate investments and help ensure that transactions between investors and issuers meet legal requirements.
What we do
- Select which Issuers to list on our platform, by among other things:
- Conducting background checks on the issuer and its principals
- Conducting a review to help ensure that the issuer is complying with certain Regulation CF obligations
- Ensuring that the Issuer has established a means to keep accurate records of the holders of its securities
- Advise Issuers about their offerings, and help prepare offering documents
- Screen investors to ensure that they satisfy applicable per-investor limits (discussed below)
- Provide communication channels between you and the Issuer, and between you and other potential investors, where you can ask questions and exchange information
- Provide search functions or other tools for investors
- Provide you with educational materials to help you assess the risks of investing (e.g., this document)
- Keep records of investor communications and materials
What we don’t do
- Offer investment advice or recommendations
- Guarantee any particular investment outcome
- Speak to investors about the merits of any particular company or offering
- Our relationship with issuers
- Issuers will pay us to be on our Funding Portal. They might pay us flat fees, commissions based on the amount of money they raise, or in other ways.
- They might also pay us for specified services we provide to them and reimburse us for expenses we incur on their behalf. For each offering you invest in, we will disclose our compensation.
In some cases, an Issuer might pay us in whole or in part with its own Securities, e.g., with its own stock. This will always be the same class of Security that is being offered to investors on our Platform. For example, if the issuer is offering common stock to investors, only common stock could be used for our compensation.
We will never own any financial interest in Issuers listed on our Funding Portal other than Securities we receive from them as compensation.
After an offering is complete, we might or might not have an ongoing relationship with the Issuer. The Issuer may decide to use our Funding Portal to raise money in the future, or use services provided by (and pay compensation to) entities affiliated with us.
Communication Channels
We will maintain online communications channels – chat rooms, basically – where you can communicate with other investors and with the Issuer. All discussions on the chat rooms will be open to the public, but only investors who have registered with us are allowed to post. Representatives of the Issuer, and anyone engaged in promoting the offering, must clearly identify themselves as such. The chat room is where you can ask questions about investment opportunities that interest you.
We, the Funding Portal, generally aren’t allowed to participate in the chat room, except to establish guidelines and remove potentially abusive or fraudulent content.
How we screen and don’t screen issuers
Under regulations issued by the SEC, we are required to:
Have a “reasonable basis” for believing that every Issuer on our Platform is eligible to offer its Securities on our Platform and is complying with Title III. We might perform our own review, but we are generally allowed to rely on the representations of the Issuer.
Have a “reasonable basis” for believing that every Issuer on our Platform has established means to accurate records of the holders (owners) of its Securities. Again, we might perform our own review, but we are generally allowed to rely on the representations of the Issuer.
Deny access to the Platform to any Issuer if:We have a “reasonable basis” for believing that an Issuer or any of its officers, directors, or beneficial owner of 20% or more of its outstanding voting securities is subject to disqualification under the rules discussed under “Disqualification of Issuers” below. We are not allowed to rely solely on the Issuer’s representations to form this “reasonable belief,” but must conduct background checks with third parties. By “officer” we mean a president, vice-president, secretary, treasurer, chief financial officer, comptroller or chief accounting officer.
We have a “reasonable basis” for believing that the Issuer or the offering presents the potential for fraud or otherwise raises concerns about investor protection, or we can’t effectively assess the risk.
We will comply with all of those requirements. But – and this is very important – we are not required to conclude that Issuers on our Platform represent good investments for investors. In fact, we are not even allowed to tell you if we think that one Issuer is a better investment than another Issuer. You have to make those decisions on your own.
Disqualification of issuers
Title III may not be used if the Issuer or certain other people have been the subject of certain disqualifying events during the last 10 years.
The “certain other people” are:
- Any predecessor of the Issuer;
- Any director, officer, general partner, or manager of the Issuer;
- A person owning 20% or more of the Issuer’s voting power;
- Any promoter associated with the Issuer;
- Any person who will be paid for soliciting investors; and
- Any general partner, director, officer, or manager of such a solicitor.
- The “certain disqualifying events” include a long list of events, all involving improper actions in the securities business – for example, the conviction of a felony or misdemeanor in connection with the purchase or sale of any security, or the loss of license of a securities broker for misconduct. The list of “certain disqualifying events” does not include any wrongdoing that is not related to the securities business. A person who robbed a bank at gunpoint would not be prohibited from selling securities under Title III by these rules, for example.
As explained above, we will conduct background checks before allowing an Issuer to list on our Platform.
---
Register for FREE to comment or continue reading this article. Already registered? Login here.
1