FREQUENTLY ASKED QUESTIONS

 

I) General Investment Crowdfunding Questions

Q. What is investment crowdfunding and how did it arise?

Q. What are the types of investment crowdfunding?

Q. What are 10 basic investment crowdfunding terms I should know?

Q. What is the minimum I can invest?

Q. What about risk and fraud?

Q. Who can invest?

Q. What is the maximum I can invest?

Q. When can I sell my shares?

Q. How can I sell my shares?

 

 

II) About NextGen

Q. What is NextGen’s mission?

Q. What types of investors can use NextGen Crowdfunding?

Q.  Does NextGen share or sell email addresses or provide other contact information about people that register on our site?

Q. Who is NextGen's audience?

Q.  How does NextGen help the public discover companies that have investment crowdfunding campaigns?   

Q.   Where can I invest in crowdfunding companies? Can I buy crowdfunded securities on the NextGen site?

Q.   What types and stages of companies typically will be seen on NextGen Crowdfunding?

Q.  Is there a way for me to preview companies before they sell shares?

Q.   Does NextGen recommend securities or provide investment advice about specific companies or industry sectors?

Q.  To what extent are crowdfunding companies reviewed by the federal government or NextGen?

Q.  How does NextGen get compensated?

Q.  Does NextGen or its affiliates have any equity interest in the companies on its site?

Q.  Does NextGen create content for company crowdfunding campaigns?

 

 

I) General Investment Crowdfunding Questions

Q.  What is “Investment Crowdfunding” and how did it arise?

Until recently, most Americans were not able to invest in private companies. That's because after the 1929 stock market crash, the federal government passed legislation that generally limited investing in private companies to financial institutions and wealthy individuals. Under this federal legislation and similar state regulations, investments were typically sold in “private offering” transactions. Federal and state laws prohibited advertising and other forms of “general solicitation” of these private offerings. As a result, only a relatively small and select group of financial institutions and wealthy individuals knew about these investment offerings. This changed dramatically in 2012 when Congress passed the JOBS Act (Jumpstart Our Business Startups).

As the Internet’s popularity grew, some companies engaged in what is called “reward-based” crowdfunding. Individuals could provide funding to companies online, and get some sort of reward, such as a t-shirt, memento, or first edition of a product. But these arrangements did not give people an opportunity to invest and benefit financially from a company’s success.

By 2012, Internet use had become pervasive in the United States and technology for online securities sales was rapidly developing. The new financial technologies used for online securities sales led to the JOBS Act and opened up investing to a large number of people online – crowdfunding – making investment crowdfunding possible. 

The JOBS Act enabled smaller enterprises to use new avenues to raise money from family, friends, customers and the general public. Specifically, businesses seeking funding can now sell securities under Regulation A+, a significant change from the previous Regulation A and referred to by many as a “mini-IPO,” or they can use Title III crowdfunding, a separate set of rules for raising smaller amounts.

Q.  What are the various types of “Investment Crowdfunding”?

It’s important to keep in mind that “investment crowdfunding” refers to how a particular security is being sold or a particular company is choosing to raise capital, and not to the type of security being sold. In fact, a company may offer for sale any kind of financial interest in a crowdfunding company or its products.

 

NextGen uses the term “investment crowdfunding” to refer to the offering of securities online in either a Reg A+ or Title III/Reg CF offering.

The securities sold in a crowdfunding campaign may be:

• equity securities, typically shares of common or preferred stock or other ownership interests;
• debt securities, in essence, a loan by the investor to the crowdfunding company;
• a hybrid of debt and equity securities – a loan by an investor which an investor may convert into equity at some future time; or
• a royalty interest or interest in a portion of revenues from a product or a crowdfunding company.

Q. What are 10 basic investment crowdfunding terms I should know?

SEC - The U.S. Securities and Exchange Commission is our national regulatory agency for securities. Its duties include regulation of publicly-owned companies, financial services firms, and offerings of securities, including investment crowdfunding.

JOBS Act - The Jumpstart Our Business Startups Act is the federal legislation that authorized investment crowdfunding.

Issuer - An Issuer is a company that wants to raise money by selling, or "issuing," shares or by borrowing money by issuing debt securities to the public. 

Accredited Investor - This government-defined term refers to wealthy, individual investors with more than $1 million in net assets beyond the equity in their home, or, more than $200,000 in annual income, $300,000 when combined with a spouse. A 2015 SEC report on accredited investors estimated that they make up only 10.1% of U.S. households.

Non-Accredited Investor - A non-accredited investor is one who does not meet the SEC’s accredited investor net worth or income requirements. This includes most of the U.S. population, i.e., the general public.  

Reg A+ (Tier 2) - This first form of investment crowdfunding became available June 2015 for all investors, accredited and non-accredited. It allows companies (issuers) to raise up to $50 million in a 12-month period. Also known as Title IV of the JOBS Act, Reg A+ is the popular term used to refer to changes made to the previous Reg A, which dated back to the 1930’s, was not widely used and restricted the amount of money companies could raise.

Companies may also elect to raise funds under provisions in the pre-JOBS Act Regulation A, now called Tier 1 of Regulation A. There are important differences between Tier 1 and Tier 2 offerings. Most significantly, Tier 1 offerings can only be offered and sold to investors in states which have approved the offering. State approval is not required for Tier 2 offerings.

Title III - This form of investment crowdfunding is also part of the JOBS Act. It’s often referred to as Reg CF, short for Regulation Crowdfunding. It became available in May 2016 for all investors and allows companies to raise up to $1 million in a 12-month period.

Funding Portals – This refers to web sites, or portals, through which investors can buy shares or debt securities via Title III investment crowdfunding which are registered with the SEC and FINRA, but are not licensed as broker-dealers.

Intermediary – Investment crowdfunding securities transactions are generally facilitated through a third-party Internet portal, or intermediary.  Sometimes these intermediaries are referred to generally as platforms. Under Title III of the JOBS Act, all Regulation Crowdfunding (CF) transactions must take place through an SEC-registered “intermediary” that is either a broker-dealer or a new type of entity called a “funding portal.”

Testing the Waters (TTW) - This provision under Reg A+ allows a company to (a) Tell the public about a possible future investment crowdfunding offering, and (b) Ask the public ("general solicitation") if they might be interested in investing in a Reg A+ offering for this company. TTW enables companies to gauge investor interest before having to incur the expense of engaging accountants, lawyers and other professionals in connection with an actual crowdfunding offering.

Q. What is the minimum I can invest?

Typically, the minimum investment amount might range from as little as one hundred dollars to $1,000, depending on the price set by the issuer.

Q. What about risk and fraud?

All investments carry risk. SEC rules require crowdfunding companies to disclose all risks which are material to an investor. Here are some risks to consider generally in investment crowdfunding:

• Issuer fraud: The JOBS Act and other SEC rules are intended to reduce fraud risk by requiring companies to disclose basic financial and non-financial information about themselves and the terms of the investment. In some cases, companies are prohibited from engaging in investment crowdfunding if they, their management or major shareholders have previously been involved in certain types of legal proceedings. However, it is up to the investor to carefully research any investment in order to reduce the risk of fraudulent investment schemes. For further information on avoiding investment fraud, you may find information on the SEC’s website useful.

• Loss of funds invested: The probability of losing some or all of your funds is very high because many businesses seeking funds in investment crowdfunding campaigns are early-stage companies.  Many early-stage companies will fail and go out of business within 3-5 years. If the company fails, you will most likely lose your investment.
• Difficulty selling your shares: Federal regulations require you to hold your Title III investment shares for 12 months. No legally required holding period exists for securities purchased in a Reg A+ offering. But even when you can legally sell, you may encounter problems with (a) Finding a buyer immediately or at all, or (b) Finding a buyer willing to pay the price at which you want to sell your shares. You could lose your entire investment if you fail to find willing buyers.

Q. Who can invest?

• Title III and Reg A+ (Tier 2): Anyone can invest. Issuers are exempt from state securities laws, called “Blue Sky” laws, under Tier 2 of Reg A+ and under Title III. Thus, they can sell shares to anyone regardless of where they reside, in effect, fundraising within a national market.

• Reg A+ (Tier 1): Investors must reside in the state in which a company has made required state filings. Issuers using Tier 1 of Reg A+ must also register to sell securities and follow the Blue Sky laws in each individual state in which they sell shares.

Q. What is the maximum I can invest?

• Reg A+ (Tier 2): No investment limits exist for accredited investors purchasing shares in a Tier 2 Reg A+ offering.  Non-accredited investors are limited to investing up to 10% of their income or net worth, whichever is greater, excluding the value of a principal residence.

• Reg A+ (Tier 1): No federal limits exist for any investors, but each state in which the offering is conducted may impose its own investor limits.
• Title III: Limits exist for all investors on the total, combined amount that may be invested in ALL Title III offerings during each 12-month period.
  • Investors with annual income or net worth (exclusive of principal residence) less than $100,000, may invest up to the greater of either $2,000 or 5% of whichever is lesser, income or net worth.
  • Investors whose combined annual income and net worth (exclusive of principal residence) are at least $100,000 may invest up to 10% of the lesser of annual income or net worth, with an investment cap of $100,000.

Q. When I can sell my shares?

• Legally: Securities purchased in Reg A+ offerings can be sold any time desired. Securities purchased in Title III offerings can be sold 12 months after you have bought them.

• Practically: You will need to find a buyer. Since these are small companies, very few people may know about them or be willing to buy your shares when you want to sell.

Q. How can I sell my shares?

• Secondary Reg A+ markets: Once investors have purchased shares from a company, they can list and sell them on “secondary markets.” Currently, Over the Counter (OTC) Markets provides a marketplace to sell Reg A+ shares but only for companies that decide to list their shares with OTC Markets.  Other markets for the sale of Reg A+ shares are developing.

• Title III secondary markets: SEC rules generally do not allow these shares to be sold for one year. Since Title III went into effect in May 2016, resale markets are expected to develop in the future.

 

II) About NextGen

Q. What is NextGen’s mission?

NextGen Crowdfunding was formed in 2015 to help people explore the new era of investment crowdfunding.  We help:

• The public discover companies that are raising funds through investment crowdfunding.
• New and experienced investors understand the fundamentals and, especially, risks associated with funding early-stage companies through investment crowdfunding.
• Startups and emerging businesses learn about investment crowdfunding.

 Q. What types of investors can use NextGen Crowdfunding?

NextGen wants to help all investors understand and explore investment crowdfunding. We welcome new and entry-level investors who will become the basis of a new generation of angel investors supporting early-stage companies. And, of course, we welcome experienced, accredited and institutional investors.

 Q.  Does NextGen share or sell the email addresses or other contact information of people who register on our site?

No. Please see NextGen’s privacy policy posted online on this subject.

 Q. Who is NextGen's audience?

NextGen focuses on people interested in investment crowdfunding who are eligible to invest under U.S. regulations. This includes both U.S. and Canadian residents.

Q.  How does NextGen help the public discover companies that have investment crowdfunding campaigns?

NextGen helps the public discover companies by listing them on NextGen's website, emails, social media, advertising, public relations, and online and live events. We hold Crowdfunding Ignition™ events, at which companies launch or showcase their crowdfunding campaigns. Participating companies pay NextGen fees for these services; however, NextGen does not endorse or recommend investment in any of these companies, as discussed further below.        

Q.   Where can I invest in crowdfunding companies? Can I buy crowdfunded securities on the NextGen site?

You cannot buy securities on the NextGen site. We are not a securities broker or a funding portal. We do not sell securities on our site, and we do not accept funds from investors.

Req A+ Offerings: To buy shares in Reg A+ companies you generally go through a crowdfunding platform or registered securities broker retained by the crowdfunding company. In certain cases, companies may seek to raise money without third-party assistance. In such cases, interested investors would deal directly with the company seeking crowdfunding.

Title III Offerings: You can buy securities only through the SEC-registered intermediary (a broker-dealer or funding portal) offering the particular issuer’s securities. You cannot buy these securities directly from the issuer.

To learn more, visit our Education pages where you can find out about different types of crowdfunded offerings, investment limits, your ability to resell crowdfunded securities and much more.

Q.   What types and stages of companies typically will be seen on NextGen Crowdfunding?

• Corporations or LLCs: Under SEC rules, the only companies allowed to use investment crowdfunding are those organized in the U.S. or Canada as corporations or limited liability companies.  

• Early-Stage Companies: Investment crowdfunding was created to facilitate capital raising by smaller or new companies that have typically had more difficulty obtaining traditional financing. As a result, companies using investment crowdfunding tend to be "early-stage companies," without proven business models, and are therefore, very risky investments.

Q.  Is there a way for me to preview companies before they sell shares?

Yes. The government provides a legal mechanism, called Testing the Waters, for companies considering Reg A+ offerings. Companies can legally tell prospective investors about their ideas and plans. A company can also ask, without any commitments from investors, if the public has any interest in investing in the company should it decide to sell shares.

NextGen's Crowdfunding Ignition™ events enable you to preview certain companies that may be testing the waters before they decide to proceed with a Regulation A+ investment crowdfunding offering.

Legally, companies testing the waters are required to present factually accurate and honest information and financial data, with no exaggerated claims, because all of their materials are subject to federal and state anti-fraud laws.  If they decide to pursue a Reg A+ offering, they must submit all of their offering materials, plus audited financial information, when they file with the SEC.

Q.   Does NextGen recommend securities or provide investment advice about specific companies or industry sectors?

We never recommend companies for investment. Their presence on our site is not an endorsement; it simply means that they have paid NextGen a fee for the service of disseminating information about them. We also do not recommend any securities or provide investment advice. Therefore, you should not infer that NextGen has made any recommendation about a company or its securities simply because a company is identified or mentioned on our site.

Certain companies mentioned on our site may pay a premium to us for more prominent placement on our site and other additional coverage.  This does NOT mean they are a “better” company or more desirable as an investment. Again, NextGen does NOT make any recommendation whatsoever about any companies mentioned on our site, no matter how large or prominent their placement.  

NextGen helps investors understand the practical aspects of crowdfunding.  We also provide information through our webinars, videos and other forums to educate investors about the opportunities and risks of investing in crowdfunded companies generally.

Q.  To what extent are crowdfunding companies reviewed by the federal government or NextGen?

Federal Government

• Reg A+, SEC-qualified companies: The SEC reviews but does not independently verify the information filed with it by companies engaged in investment crowdfunding offerings The SEC does NOT pass upon the merits of, or give its approval to, any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of the company’s disclosures.  

• Companies Testing the Waters: Applicable laws and regulations require that these companies provide honest, accurate information without exaggeration. However, information disseminated by TTW-stage companies is not filed with and therefore generally not reviewed by the SEC. However, if a company that has “tested the waters” eventually does file a Reg A+ offering with the SEC, the TTW materials previously disseminated must also be filed and may thereafter be reviewed by the SEC at that time.
• Title III investment crowdfunding companies: These companies are not reviewed by the SEC, but SEC rules require these companies to file with the SEC and provide to all investors basic information regarding the company’s business and the terms of the proposed investment, including risks. All information is required to be accurate and not misleading.

NextGen Crowdfunding

• NextGen requires that all issuers we work with state that they conform to all applicable federal and state regulations. We do not check on this conformance, however. Furthermore, we do not independently verify information provided by issuers. An issuer’s presence on our site or at our events should NOT be taken as any representation or assurance by us with respect to the honesty, competence, financial solvency or integrity of the company or its management.

Q.  How does NextGen get compensated?

We charge fixed fees to the companies that wish to appear on our site, at our events or otherwise engage our services. The amount generally depends upon the particular service and the length of time it is provided.  We charge:

• Less expensive fees for companies with a simple listing on our site.
• More expensive fees for more prominent or more complex listings, involvement in special online or onsite events (Ignition™ and other events), email, social media, ad support and other services.

We do not accept payment in securities. We do not receive commissions on the securities sold in a company’s crowdfunding campaign, nor is the payment of our fees ever contingent upon the success or size of an investment crowdfunding campaign.  

We do not currently charge any fees to visitors to our site. However, we may in the future charge visitors to access premium content.

We may also derive income from sponsorship fees and advertising.

Q.  Does NextGen or its affiliates have any equity interest in the companies on its site?

No. Neither NextGen, nor its owner, currently have any direct equity interest in the companies on its site.  Affiliates of NextGen have invested in and, from time to time, may invest in various companies focused on the investment crowdfunding and/or Reg A+ space, including third-party crowdfunding platforms.  These platforms may receive an equity interest in the crowdfunding company as part of their compensation.

Affiliated companies of NextGen and its owner have non-controlling minority interests in StartEngine Crowdfunding, Inc., SeedInvest, LLC and Wefunder, Inc. StartEngine and SeedInvest have earned, and may in the future earn, warrants or other equity interests as part of their fees from the issuers posted on their platforms conducting financings under Title IV/Reg A+. In addition, Title III platforms, including StartEngine, SeedInvest and WeFunder, are permitted under SEC rules to accept all or part of their compensation in the form of investment crowdfunding securities.  Accordingly,   StartEngine, SeedInvest, WeFunder and other third-party crowdfunding platforms may from time to time have an investment interest in companies that raise money under Regulation A+ or Regulation CF which are also clients of NextGen. NextGen will disclose on its site the existence of any material relationships between NextGen or an affiliate with a third party as and when required by SEC rules and regulations and any other applicable laws.

Q.  Does NextGen create content for company crowdfunding campaigns?

No. NextGen is not a general marketing services company. We do not create company pitches, company pitch videos, press releases, advertisements or other materials. Thus, NextGen does not create or shape the message of companies on its site. Content creation is the issuer’s and/or its marketing consultant’s responsibility. We may occasionally help format selective issuer artwork or graphics, but we expect each issuer to provide its own text, graphics, image, and video to NextGen. We also will occasionally record video presentations for issuers but again, each issuer must provide its own script, graphics, and images; we merely record the presentation.