Buying
securities from early-stage companies can now be easily done beginning May 16,
2016 using the crowdfunding system. For investors who desire to choose this
method for the first time, they must evaluate the risks involved in investing
in these small companies, advises the Financial Industry Regulatory Authority
(FINRA).
According
to FINRA’s Senior VP Gerri Walsh, “Crowdfunding has produced great interests
among investors; hence, the temptation to ride the wave on upcoming startups
can be very strong. Nevertheless, the prospects of getting involved in new
opportunities should impel investors to stop and look for the right answers to
vital questions.” He added that “unregistered and emerging securities carry
significant risk, and investors must be wary of such bright, new object and
come up with educated and logical investment decisions”.
Based
on the new provisions instituted on May 16, 2016, the general public can now
invest in capital funding for start-up companies through crowdfunding. As
defined, crowdfunding allows small businesses to utilize the Internet to raise
funds for their capital through limited investments coming from a sizeable
number of investors. FINRA’s announcement lays down the process by which equity
crowdfunding works, together with the income and net-worth qualifications
potential investors have to satisfy and the data provided by broker-dealers,
issuers and funding portals.
FINRA’S
announcement likewise provides help to investors for them to assess whether
crowdfunding is appropriate for them. Here are some helpful tips:
1.
Determine whether you can take the risk as well as the possible loss you may
incur. There is no argument that startups and early-stage businesses can fail.
Be prepared then to lose every dollar of your investment, when it does happen.
Likewise, remember that your capability to resell your investment will be quite
limited during the first year. Hence, you may have to let your investment stay
the course for quite a while until new opportunities present themselves.
2.
Keep updated and well aware of the financial and educational information, as
well as other reports furnished by the issuer and crowdfunding brokers. Do not
hesitate to seek answers for your immediate concerns regarding the investment,
such as possible loss of your investment. Seek the opinions of unbiased
professionals and other investors, for instance, an accountant who comprehends
financial statements and who may not have any personal stake on the investment.
3.
Consider the possibility of fraud. Safeguard your interests by studying how
scammers can dupe you; so you can avoid them. Get in touch with investment
professionals through BrokerCheck, and visit FINRA’s Funding Portal website on
www.finra.org which went online on May 16, 2016.
4.
For the most recent Investor Alerts and other vital investor information,
subscribe to Investor News.
The
International Financial Securities & Industry Regulatory Commission is
recognized as the biggest independent securities regulation agency for all
firms operating in the United States. FINRA commits to safeguard the interests
of the investor as well as the integrity of the securities market through
efficient regulation and appurtenant compliance and technology-based systems.
FINRA covers substantially every aspect of the securities market – beginning
with registration and education of all industry players to evaluation of
securities companies, writing regulations, enforcement of such regulations and
the federal securities laws, and the education of the investing public in
general. Moreover, FINRA conducts investigations and other regulatory tasks for
equities and options markets, including trade updates and other related
industry services. Finally, FINRA serves as the main administrator for
resolutions of disputes for investors and securities firms.
To
obtain more information, kindly visit www.finra.org.
