For New Investors, Angels Investor Networks and Funding Support Organizations
Wait! What…? Now that the Federal JOBS Act and NC PACES act investment crowdfunding laws are in effect, any individual in the community can allocate a portion of their investment funds to private businesses in their community. This is both for wealthy (accredited) investors and ‘retail’ (non-accredited) investors. Welcome to Investment Crowdfunding!
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What is Investment Crowdfunding?
It is a way for you to invest in companies and entrepreneurs you know, love and trust. From your favorite main street business, to the next high growth startup, it’s a great way to support local entrepreneurs. Listen to learn more about the opportunities being unlocked for investors with our entrepreneurial community builder, William Bissett, founder of Charlotte Angel Connection.
Our CrowdfundNC advisor network and our partner investment crowdfunding platform, Localstake NC can also support the needs of investor networks and professional investors such as angel investor groups, university investor networks, specialized syndicate investor networks which focus on particular areas such as IoT or Fintech, startup accelerators, and small business funding support groups like Chambers of Commerce.
How much are these businesses trying to raise?
Based on results across the industry, typical raises are $100K minimum, $250K on average and can go into the millions based on the exemption chosen.
Exemption fundraising limits are as follows
- 504 – usually up to $5M per year
- 506(b) – no cap
- 506(c) – no cap
- Reg CF – up to $1.07M per year – Potentially Raise More with a Concurrent Offering
- NC PACES – up to $2M per year
- Reg A+ (pre-IPO) – up to $50M
Equity or Debt Offering Types can be used.
How much money does it take me to get started?
It depends on the business raising and the type of raise they are conducting.
Minimum investment sizes can be as low as $100 and are usually no higher than $500 for public rounds.
Minimum investment sizes for accredited investor offerings (Syndicated rounds, private rounds, public accredited-only rounds) usually start at $1,000 and go up from there.
The minimum investment amount for Investment Crowdfunding offerings is usually much lower than traditional angel investor offerings. This allows new and seasoned investors to diversify their investments across more offerings to reduce risk.
How do I invest?
You set up a Localstake investor account (About Localstake). Localstake investor accounts are for both wealthy and non-accredited (‘retail’) investors. Under Regulation Crowdfunding and the NC PACES Act offering exemptions, anyone can invest in these offerings as long as the limits and rules for the exemptions are followed. For the first time, every retail investor in North Carolina can participate in these private equity and debt offerings. Keep in mind that private equity and debt offerings are risky, and that investors can lose part or all of their investment.
Can I invest with my IRA?
Yes, but not without either a specialized Self-Directed or Self-Directed Checkbook IRA. The cool part is that the team over at Rocket Dollar has created a simple solution for the everyday person to unlock their IRA. We’ve partnered with them to give $75 off account setup to help anyone who wants to become an angel investor in startups and other private businesses as part of their investment diversification strategy. There are IRS guidelines around what you can and can’t invest in with your IRA so check with your tax professional if you have questions.
What if I don’t know any entrepreneurs, but want to invest?
We’re surrounded by entrepreneurs in our community. Investment crowdfunding platforms like LocalstakeNC make it easier than ever to find, vet, and invest in promising startups and small businesses that are doing debt or equity offerings using Investment Crowdfunding exemptions.
What should I look for in a company?
While we’re not investment advisors, here is some criteria you may want to look for as an investor.
Your mission as an investor is to find great investment opportunities in startups and small businesses that have a good company vision, a real problem they are solving with their product or service, a great solution they have developed, a focused view of their market and how they are going to reach it, how they plan to beat their competition, a reasonable financial projection of their business and the excellent team they have put together that can make their business a success.
On their crowdfunding investment campaign webpage, these companies will make their case for the funding they need to get that done, and explain the investment offering they are making. Their goal is to find investors like you in your community that share their enthusiasm for their business and will help fund it.
At the end of the day, it is up to you to determine if the company is investable and meets the risk you are willing to take. Keep in mind that private equity and debt offerings are risky, and that investors can lose part or all of their investment.
What are the tax benefits or considerations of private company investing?
We’re not tax professionals, though we’re partners with a few. However, there are several exemptions (e.g. 1202 Qualified Small Business Stock (QSBS)) that individuals can use to potentially completely eliminate any capital gains taxes from investing. Consult with your CPA for additional information.
How much is being invested via Investment Crowdfunding?
$2.5B from 2012 to 2018 was raised by startups and small businesses around the nation using Investment Crowdfunding. A few North Carolina companies participated as well.
From the initial date public Investment Regulation Crowdfunding (Reg CF) raises became legal (May 16, 2016) to the end of 2018, an impressive $194M of the $2.5B has been raised via Regulation Crowdfunding.
The rest of the $2.5B has been invested on platforms by professional investor groups and/or individual accredited investors.
Is this safe?
LocalstakeNC is a registered Broker/Dealer in North Carolina and many other states, so your investor account falls under the regulatory compliance rules of FINRA, the SEC, and the state of North Carolina. It is very similar to opening an investment account at any other online Broker/Dealer, but you have the opportunity to invest in private equity and debt offerings. But keep in mind that private equity and debt offerings are risky, and that investors can lose part or all of their investment. You should never invest more than you can afford to loose.
How do I make money and when do I get my money back?
It depends on the offering. If a business offers a Revenue Share or Dividends, you could potentially see your principal starting to be paid back within a month or two and see positive returns within 2-5 years.
If a business offers a convertible note, SAFE, or another equity instrument, returns don’t occur until there is some type of exit event (e.g. an Online Public Offering (OPO) or Initial Public Offering (IPO)). OPOs may occur within 3-4 years. IPOs typically take at least 7 years and may never occur.
What type of returns can I expect?
In all cases, the business must be successful in order for you to see a return. If the business fails, which most do, you could loose part if not all of your investment. You should never invest more than you can afford to loose.
- Assuming the business you invest in is successful, then your return depends on the terms that they offered. Some examples might be:
- If it’s a Main Street business offering a Revenue Share loan, returns of 1.5x to 3x for the period of the loan are typical offerings.
- If it’s Common Stock with a dividend, you may see 6-12% annualized returns after profitability is achieved.
- If you invested in a high growth startup, returns can be 10x+.
Many other scenarios and results are possible. Always carefully review and understand the terms of the offering, as this greatly impacts your potential return.
Learn more about private investing.
What else should I know?
Please see our important disclosures for more information about investing on LocalstakeNC.
Here at CrowdfundNC.com you can find the tools and services from the top investment crowdfunding experts in North Carolina to help investors, investor networks and funding support organizations find, organize, and vet those opportunities whether they are using Regulation D, Regulation CF or North Carolina PACES Act equity or debt offerings.
Localstake NC also provides special hosting and deal flow services for investor networks like angel investor groups, startup accelerators, and small business funding support organizations. Please contact us for more information.
Get started by setting up your free investor account on Localstake NC. Please visit: https://nc.localstake.com/for_investors firstname.lastname@example.org
Contact us for more information about making investments using Investment Crowdfunding. See the links on the right and