Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms

CHAPTER 14

Liquidity and Secondary Markets

Your primary motive for investing in private securities via equity crowd-funding is either social or financial. In the Title III world at least, you should not try to optimize your investment decisions in terms of both social and financial objectives, as we discussed in Chapter 8.

If you have invested in one or more Title III offerings for social purposes, your main concerns are the company's short-term survival, its long-term effectiveness in fulfilling its mission or achieving a particular social impact, and/or your satisfaction with being a member of the “team” (which may include both entrepreneurs and co-investors). This is a buy-and-hold kind of investment, rather than a mere trade. You certainly do not wish to lose the money you invested, so you hope that the company will someday return your money in the form of dividends, a capital gain, and/or perks and benefits. But a spectacular return on investment, in the event of an IPO, for example, is not your primary concern or expectation. Nor should you have high expectations regarding the liquidity of your equity shares—that is, your ability to sell the shares at any time after the one-year holding period.

If your motives are financial, on the other hand, ROI and liquidity are primary concerns. In Chapter 13 we discussed upside exits such as acquisitions and IPOs, where—after holding an investment for several years—investors can measure annualized returns (e.g., 20 percent per year) ...