What are my risks when investing on ACE?


 
Darren Moore
Last Updated: 3 months ago

Crowdfunding investments are risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision on a particular Talent.

Speculative

Investments in Talent Limited 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 Talent Limited Company often relies on the overall taste and comsumption of the market. You should be prepared to lose your entire investment.

Illiquidity

Your ability to resell your investment in the may 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, there must be an interested buyer to resell your Talent Token.

No voting rights

Investment instruments hosted on ACE are typically held via the Crowd SAFE, then non-voting equity (both represented by the Token), which does not provide voting rights to investors.

Valuation and capitalization

Talent Limited Companies are unlikely to have substantial operating or financial histories. There is limited–if any–information for valuing Tokens offered through ACE and there is a substantial risk that the price of Tokens purchased on ACE may exceed their value and any amount for which they may eventually be resold. Furthermore, Tokens sold on ACE may provide investors with inferior terms than similar securities provided by a company in other offerings.

Limited disclosure

The Talent Limited 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 the Talent Limited Company may be able to 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 Talent Limited Company is also an investment in the founding entrepreneur(s) and/or the company’s management. Being able to execute on the business plan is an important 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 Talent Limited Company's use of funds.

Possibility of fraud

There is a risk that a Talent Limited Company raising on Republic engages in fraud. ACE vets the companies we host, but there is no way to control the actions of a company once a capital raise ends and ACE cannot verify everything.

Lack of professional guidance

Many successful companies partially attribute their early success to the guidance 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 important role in providing additional resources, contacts and experience in assisting early-stage companies in executing on their business plans. An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.



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