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Investor Education

Most frequent questions and answers

Getting Started

Welcome! The world of startup investing is exciting and dynamic, and like other high-risk investments, it’s important to learn as much as possible before you get started. We suggest the following:

  • Review the Title3Funds Website
  • Read our Frequently Asked Questions
  • Review our Glossary of Terms
  • Review our Directory of Company Profiles

If you want to dig deeper and learn more about the investment process, we recommend reading through the wealth of information offered on the following websites:

  • FINRA (Financial Industry Regulatory Authority)
  • SIPC (Securities Investor Protection Corporation)
  • SEC (US Securities and Exchange Commission)
  • SBA (Small Business Association) 
  • Learn more about Crowdfunding from the SEC website here.
  • Read the SEC Investor Bulletin here.

Once you feel comfortable with the investment process, click on the “Invest” button in the top right corner to get started.

Click the button in the top right corner that says “Invest.”

We love startups for their innovation, vision, and unflinching drive to succeed. For many people, entrepreneurship is the intersecting peak of both creativity and productivity. If all goes well with the venture, we are able to see the founders fulfill their dreams and make an impact on the community. It is important to know that crowdfunding investments can be very risky, and may result in a complete loss of your investment.

Everyone has their own reasons for investing in startups and we encourage you to find your own ‘true north.’
We strongly urge that the underlying motive for your startup investments go well beyond monetary goals. In many situations you may not see a return on your financial investment, or, you may end up losing your investment entirely.

We love it when investors feel a connection to the business — founders they admire, missions they believe in, and goals that are bigger than themselves. As an added bonus, should the startup evolve into an IPO, we are thrilled to see them gain a return on their financial investment…but even happier that they enjoyed the journey.

Crowdfunding is a financing method in which money is raised through soliciting small individual investments or contributions from a large number of people. Over the last few years, crowdfunding websites, like Kickstarter, have become a popular way to solicit charitable donations and to raise funds for artistic endeavors like films and music recordings.

Title3Funds lets investors own a small stake in a business, while Kickstarter only allows investors to purchase products.

Yes, but it’s fairly new. Under rules adopted by the SEC in 2015, the general public now has the opportunity to participate in the early capital raising activities of startup and early-stage businesses by way of crowdfunding. This new regulation allows companies to use securities-based crowdfunding to offer and sell securities to the investing public.
Learn more here.

In essence, we wanted to level the playing field for startups and investors. We set out to create a marketplace where these two entities can come together for a common cause.

Title3Funds has established itself as the premier option for startup crowdfunding. There are several factors that make us unique.

Selection process: We want our investors to feel confident with their investment options on Title3Funds, so we put substantial effort into vetting companies who apply with us. Our team of advisors and consultants only approve the best and most promising businesses to be featured on our portal.

Accountability: We are committed to improving the process. Collectively, our team has processed nearly $500 million in transactions and we use the latest technology to improve efficiency and accountability in the Crowdfunding Space.

Minimum Raise: Our minimum fundraising limit is significantly higher than other platforms in this space. With a $100,000 minimum raise, we believe companies will be able to make substantial leaps forward in their business growth, and will therefore have a greater probability of return on our investors’ contributions.

Startup Services: Each startup will be paired with an Title3Funds advisor who may personally connect you with industry-appropriate attorneys, accountants, website developers, marketing consultants, and more. There is a suggested investment of $5-10K in services to ensure that your campaign is a success, and we can help facilitate connections with people who get the job done.

Investing 101

Most investments can be categorized as either debt investments or equity investments. In an equity investment, you buy an asset and your profit is related to the performance of that asset. If you buy shares in a business, your profit is based upon the net revenue of that business. Equity investments are very high risk as businesses can be volatile during periods of expansion and contraction, and the majority of startups and small businesses do not succeed for the long term. There is a high risk that you will lose your entire investment. You should always consider your risk tolerance, time horizon, and financial objectives before making equity investments and decisions that could affect your financial future.

In a debt investment, you loan money to a person, a business, or a government institution. With a debt investment, your profit is not directly related to the performance of the borrower (in this situation, the business). If you loan $1000 to a startup business and they become highly successful, you will only be repaid for your initial investment plus interest, and you will not otherwise benefit from the company’s financial success.

There is always a risk with debt investments that the borrower will be unable to pay back the debt. If the borrower doesn’t have the money to pay their lenders or if they file bankruptcy to legally avoid paying their lenders, you could be faced with a complete loss of your investment.
Equity based investments are seen as higher risk and therefore typically earn a higher rate of return over the long term. This is why we make strategic equity-based investments, instead of putting our money into (theoretically) safer debt based investments.

Debt based investments are seen as lower risk and therefore usually earn a lower rate of return (again, over the long term). However, debt based investments struggle against a hidden risk — inflation. Many debt based investments offer a rate of return which is less than the rate of inflation. Every day you hold those investments, the real value of your investment capital decreases. For example, if you hold money in a savings account which earns 4% interest and the rate of inflation is 5% per year, you lose 1% of the value of your investment every year.

The main difference between a primary investment offering and a secondary investment offering is how the shares (stocks) are acquired. In a primary investment offering, investors are purchasing shares (stocks) directly from the issuer. In a secondary investment offering, investors are purchasing shares (stocks) from sources other than the issuer (employees, former employees, or investors).

If your personal income has exceeded $200,000 for the past two consecutive years, or if you and your spouse together have exceeded a personal income of $300,000 for the past two consecutive years, you are likely considered an accredited investor.

There are, however, a number of additional criteria to be met for accredited investment opportunities, as outlined by the SEC. You can view the specific criteria here.

Based on the current U.S. Securities and Exchange Commission (SEC) regulations, most startup investment opportunities are available only to accredited investors. An accredited investor is defined under rules set by the SEC.

You are an accredited investor if you meet one or more of the following criteria:

  1. Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
  2. Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
  3. Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
  4. Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
  5. Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000.
  6. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
  7. Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in §230.506(b)(2)(ii); and
  8. Any entity in which all of the equity owners are accredited investors.

We have found that working collaboratively with a group of prospective investors is the best approach. As a team, you are more likely to dig deep and discover underlying issues with a startup.

Having said that, you are still responsible for conducting your own due diligence, separate from the group. Investors should ask detailed questions during the fundraising process. If the founder gives answers that are not convincing, then you should not invest!

We encourage you to develop a unique set of questions for each startup venture and their current needs. Here is a short list of potential questions to get you started:

  • How do you acquire customers?
  • How much does it cost to acquire a customer?
  • What are your costs and plans?
  • Does management have experience and expertise? Is it adequate for the current stage of business?
  • Do the founders and management team have a track record of success?
  • Is this true market research? Is it presented properly, or is it just a theoretical model?
  • Who are your competitors?
  • Why is your company unique?
  • What are your projected cash flows?
  • What is your 5-year projected income?
  • What is the current status of a company’s debt?
  • Is there revenue sharing?
  • Who do you owe money to?
  • Is there any cash in the bank? Cash reserves?
  • How much money has been raised at this juncture?
  • Are there regulatory issues? Litigation or disputes?
  • Are there any personal issues that would distract from the company’s success?
  • What is the IP? Patents? Trademarks?
  • Are there regulatory issues?
  • Aside from management, who is on the Board?
  • Who are some of the advisors and consultants?
  • What are the salaries?
  • Are the projected expenses reasonable?
  • Are the goals and milestones attainable?
  • Is their fundraising goal enough to accomplish the desired goal?

Risks & Expectations

Investing in startups is VERY risky. Educate yourself on the process and know the risks before you get started. Only invest what you can afford to lose.

Do not allocate more than a few percent of your investment portfolio to startup investing. You should never invest so much that it would impact your lifestyle or retirement plans if your entire investment is lost. Every investment listed on our platform is much riskier than a public company listed on the stock market.

Your primary goal should not be to ‘make tons of money’ but to support the founders on their entrepreneurial journey.

Diversifying your investments will help mitigate risk and avoid complete loss. We suggest focusing on areas where you have an expertise, and we recommend investing in startups where you are a passionate user of their products. Even professional investors have a hard time predicting exactly how startups will earn money in the future. Investing in what you know and find personally valuable is the signature of a good investment.

When you make an equity investment on our platform, you have to be willing to risk every dollar you invest, or possibly wait at least 5+ years for a return. If you cannot do either of those, then you should not be making equity investments.

It is best to view an equity investment as an highly speculative, longer term proposition that could be successful, or a total loss. Hence your risk tolerance should determine not only a company’s prospects, but the type of investment vehicle you select.

Compared to equity investments, loans can be slightly less risky but also have less of an upside. You should still assume that a loan will not be paid back. Never invest more than you can afford to lose. Otherwise, our investment opportunities are not appropriate for you.
Making an assortment of small investments each year, rather than one large one, is our best advice. If your budget allocates $5000 per year in startup investments, it will be less risky to make ten $500 investments instead of a single $5000 one. However, though diversifying your investment can help manage risk, it cannot ensure a profit or protect against loss.

Probably not. You should assume that you cannot resale your investment to another investor. Plus, almost every equity security on our platform prohibits resale, as private companies carefully guard the number of shareholders on their “cap table”. Regulation Crowdfunding also specifically prohibits resale of securities for one year, except to the issuer, an accredited investor, a family member, or their trust.

Yes. An equity stake will almost certainly be diluted.

From launch to IPO, successful startups host multiple series of financings. For each round of financing, the startup issues additional stock to the new investors. This is totally normal and healthy, as long as the value of the company increases with each round of funding.

However, when things are not going well, a startup is sometimes given the option to file bankruptcy or to raise more money in a “down round”, which means the value of the company decreased since the last financing. This is incredibly bad for the founders and previous investors, as the dilution happens much more rapidly, but this “down round” scenario is still preferable to the startup going bankrupt and the investors losing everything.

Probably not. You should assume your investment does not include voting rights unless otherwise specified. It is rare for an investment on our platform to offer voting rights directly to smaller investors. Founders fear this can scare off venture capitalists who invest in later rounds, due to the hassle of collecting thousands of signatures.

Investing with Title3Funds

No. Title3Funds is an informational platform that merely connects investors with startup founders.

We never recommend that you invest money into a particular startup. You should conduct your own due diligence to decide which startups, if any, are worthy of your investment.

Note that all information regarding companies on Title3Funds is provided by the companies themselves. We have stringent guidelines when evaluating startups and take every measure to reduce fraud, but we do not verify the accuracy of the information provided. We may also may work with a company on their campaign presentation or promotion, but we do not endorse the business and we offer the same level of service to all companies in our portal. If you are investing through our platform, please do your own research on each individual company prior to investing.

We accept investments as low as $50 per round of funding.

We anticipate that our minimum allowable investment will increase as our membership continues to climb.

For Regulation Crowdfunding offerings, your annual investment limit is calculated based on the net worth and income you provided when you opened your account with Title3Funds. Investment limits are set for every 12 month period, and every investment you make into a Regulation Crowdfunding offering counts toward the annual limit. You are not allowed to invest greater than this amount.

Your investment limit is calculated based on SEC regulations that include the following parameters:

  • Everyone can invest at least $2,200
  • If either your net worth or income are below $107k, you may legally invest a maximum of 5% of the lesser number.
  • If both your net worth or income are above $107k, you may legally invest a maximum of 10% of the lesser number.
  • No one may invest more than $107,000. Accredited investors are subject to the same investment limitations as everyone else, no matter how silly that is.
  • To determine your own investment limits, click on the “Invest” button in the top right corner and get started.
Limits are set by the government and by the issuer. Therefore, you cannot invest a greater amount than the maximum listed for a specific opportunity.
Yes, unless the law of your country prevents you from investing.
Look for the big green button! If a company is fundraising with Title3Funds and you are eligible to invest, there will be a big green “Invest” button near the top of the company profile. Indicate how much you would like to invest, choose your payment method, and sign the contract. We currently take the following methods of payment: bank accounts, wire transfers/ACH, checks, credit card.
Once you apply to invest, you will hear back within 24-48 hours. No money will leave your bank account until your application has been accepted and both parties have signed the contract. If you are not outright accepted at your desired investment amount, it is common for you to be accepted contingent upon lowering the size of your investment or, alternatively, you may be rejected.
When startups receive more money than they need, investors are often waitlisted. This is often referred to as being ‘oversubscribed.’ Instead of reducing the size of everyone’s investment, founders may choose which investors to accept and may prioritize those who can help their company the most. Decrease your chances of being waitlisted by applying to invest early, connecting your social networks, and filling out your profile completely.

Congratulations! You have 7 days to ensure payment is sent to an escrow account. Your funds will be held in an escrow account until the fundraising target has been met and the round closes. Your funds will then be transferred to the startup and your investment will be fully confirmed and executed.

If this time expires and you are past the 7 day window, your investment application will be automatically canceled.

Everything is handled electronically. After signing contracts on Title3Funds, you will be emailed a PDF of the executed documents signed by both parties. A copy of your contract is also available via your dashboard on the Title3Funds website.
Yes. Your investment is placed in an escrow account hosted at Prime Trust. Funds are transferred to the startup only after the fundraising target has been met and the round is closed.
When more money is committed than a startup can accept, it is considered ‘oversubscribed.’ Priority for who becomes an investor is generally placed in the order that the funds have been received into the escrow account. It is also common for startups may also prioritize investors they feel can help their company the most. You can increase your chances of becoming an investor by completing your full profile, connecting your social networks, and investing early.
After an investment is successfully executed, you will receive an email with your electronic contract signed by both parties.
We charge a “Success Fee” – a percentage of the capital raised on our platform of up to 7% when an issuer reaches their funding goal. This may be in the form of cash or equity or a combination of both. We may be providing premium services for issuers such as consulting services, due diligence materials and other support features.
You should plan on holding your investment until the company has an exit. There is currently no market for selling your investment on the secondary market. If there is an emergency and you need to liquidate your investment, notify us immediately and we will do our best to find an available buyer, but we can’t guarantee that you will be able to exit.
We ask all companies on our platform to provide us with updates, although it is not a requirement for their participation. If a company chooses to provide us with an update, we will pass it along to our investors. If a company does not provide us with an update, we do not have information rights and are thus unable to provide investors with an update. Going forward, we plan to have an emailed monthly newsletter and an online resource that will house all of the updates we receive from participating companies.

Cancellations

Yes. You can change your mind for any reason, at any time, up to 48 prior to the issuer’s offering deadline. Even if you have already signed the investment contract but the fundraise is still open, you will receive a full refund on your investment.

A 5-day warning notice will be issued when a campaign is about to close, so review these notifications carefully and take action prior to the deadline.

You can cancel your investment commitment anytime up to 48 hours prior to the issuer’s offering deadline, for any reason. Sometimes, an offering may reach it’s goal before this deadline, but as long as your funds are still in the escrow account, and the fundraising round has not been closed, you may still cancel your investment. After the 48 hour pre-closing deadline, an investment may only be refunded if the offering is not completed by the issuer, or if the offering makes a material change to its offering terms or information.
Technically yes, but it is not common. Startup founders have the same cancellation rights as investors, so if your funds are still in escrow, it is possible. Legally, startups can cancel your investment for any reason, but this is usually only done over something fairly extreme, such as discovering that you work for a competitor. Once the fundraising round is officially closed and the startup has accepted your funds in the escrow account, your investment cannot be canceled.
Every round of fundraising is open at least 21 days, and a fundraising round will close at their offering deadline. A specific round may close earlier if their funding target has been met. In this case, you will receive a 5 day warning notice before the close date, which will be sent via email and/or push notification.
If the fundraising fails, you will be notified via email and receive a full refund of your investment.
It depends on the method by which you’ve paid. We’ll initiate a refund as fast as possible but it can take up to 14 days. Refunds will be issued via the method you used to make the payment.

Investor Updates

Communication will be minimal. Startup founders are busy running their companies and won’t have time to talk to hundreds of investors. We encourage companies to update investors regularly, but there is no legal obligation to do so. Legally, most companies are required to issue an annual report.
Yes! In fact, most of the fun from startup investing comes from how you can help. You can offer product feedback, introduce founders to relevant people in your network, or evangelize product launches. Founders will often publish specific requests for help to their feed.
No. You will not have access to their email addresses, phone numbers, or any other contact information. All communication with founders is handled via the Title3Funds platform.

Investors should receive an annual report once a year with financial statements and business overview. Legally, companies are required to send this out no later than 3 months after the end of their fiscal year.

There are some exceptions to the rule. Companies are not obligated to file annual reports if they file for an IPO, are acquired by a purchaser, repurchase your investment, file for bankruptcy, have fewer than 300 shareholders after 1 year, or have less than $10 million in assets after 3 years. Some startups who can easily raise venture capital funds may also choose not to publish an annual report, as the only penalty is they may not use Regulation Crowdfunding again until they do so.

Note that if company stops reporting, you may not have current financial information about the business, and could therefore be making uninformed investments.

Not necessarily. After fundraising, we provide each startup with continued access to our platform and post-campaign services, but there is no guarantee the startup will continue to work with Title3Funds on their next campaign. They may decide to raise their next round on a different funding portal or they may have access to venture funds.

Returns

Most startups on our portal use a Convertible Note or SAFE (Simple Agreement for Future Equity). Contrary to the indication of its name, SAFE securities are not “safe” investments.

SAFE securities are high risk and complex with non-standardized terms. This means the terms of a SAFE may vary from deal to deal and that reading disclosures carefully on every single deal is essential. You should read the fine print and educate yourself completely before moving forward with a SAFE or any sort of investment.

A SAFE represents the possibility of a future equity stake if certain triggering events occur. Triggering events could range from priced rounds to an IPO and are unique to each investment.

For example, if the company raises a “priced round” from professional investors, the note or SAFE can convert to stock. If the company achieves a certain level of success, the value of the stock can increase with each subsequent round of financing. If the company is acquired or goes public you can sell your stock.

This is an ideal scenario, but it is also rare. Startups and SAFEs are very high-risk investments. Since the triggering events may not ever occur, the SAFE investor will more likely receive nothing and lose their entire investment. We may all want a company (and your investment) to be successful, but you have to go into the deal assuming there will not be a sale or any return, at all.

You should plan to lose your full investment.

Valuation is not an exact science, yet it is critical in helping determine not only the potential of a business, but the risks, as well.

There are a myriad of factors that may determine valuation other than the prospects of a company’s product or service. These may include management’s track record, the industry itself, and even the investment climate at the time. Title3Funds will consider these, along with other relevant data to help provide both investors and businesses a level playing field in the valuation process.

Investments in young companies carry substantial risk. In some cases you may never see a return – you must be able to afford to lose your entire investment. Of course, there is always a possibility for outsized gains. After the one year general mandatory holding period, a secondary financial transaction may be required to realize a positive return. It is also possible that the Company may be acquired at a higher valuation. Investors must realize that it may take a number of years for a company to reach its full potential.

Thinking about investing?