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Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms by Matthew R. Nutting, David M. Freedman

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CHAPTER 11

Deal Terms

When you find a Title III equity offering that seems attractive in terms of its industry, location, product or service, team profiles, and idea with growth potential—the factors that are visible to everyone on the site—your next step is to request access to the confidential offering documents, deal terms, and other disclosures.

If you are new to the world of private securities, it is easy to be confused by the vocabulary used to describe offering documents and terms. We will start by distinguishing between prospectuses, private placement memorandums, term sheets, and equity purchase agreements. In general, these documents summarize the information that investors need to make an informed investment decision.

Prospectus. When a company issues stock and offers it to the public on a stock exchange, the financial and legal terms of the offering are presented in a document called a prospectus. The prospectus is distributed to prospective investors and also filed with the SEC with Form S-1 or F-1. Most prospectuses are dozens of, and sometimes well over 100, pages long and contain the following information, all of which is material to an investor's ability to make a fully informed decision whether to invest:

  • Offering terms, including the date of the public offering, number of shares authorized to be issued, price per share (if it's an IPO), class of stock (common, preferred, etc.), intended use of the proceeds of the offering, shareholder rights and restrictions, ...

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