What risks do specific security types have?
Investing in start-up and early-stage businesses can be very rewarding, but investing in those businesses involves a number of risks. To invest in businesses through truCrowd, you need to understand the following important risks:
Risk of Loss of Investment
Most startup businesses fail and therefore investing in these businesses may involve significant risk and it is likely you may lose all, or part, of your investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk. If a business you invest in fails, neither the company – nor truCrowd – will pay you back your investment.
Risk of Lack of Liquidity
Liquidity is the ease with which you can sell your securities after you have purchased them. Buying securities in businesses pitching through truCrowd cannot be sold easily as they are unlikely to be listed on a secondary trading market such as NASDAQ, AMEX or the New York Stock Exchange. Even successful companies rarely list securities on such an exchange. In addition, if you purchase B Investment Shares, these are non-voting shares and may not be attractive to potential buyers. Without a public market to find a buyer for securities it may be more difficult to sell them. Investment in crowdfunding assets should be viewed as a long term and illiquid investment. Current rules state you must generally keep any purchased securities at least twelve months from the acquisition date.
Risk of Rarity of Dividends
Dividends are payments made by a business to its shareholders from the company's profits. Most of the companies seeking financing via equity crowdfunding are startups or early stage companies, and these companies will rarely pay dividends to their investors. Profits are typically reinvested into the business to fuel growth and build shareholder value. Businesses have no obligation to pay shareholder dividends.