How can I sell my shares?
Under Regulation Crowdfunding you are restricted from reselling your securities in the first 12 months post-closing of the campaign, with a few exceptions:
- to the company that issued the securities;
- to an accredited investor;
- to certain family members including, child, stepchild, grandchild, parent, stepparent, grandparent, spouse, spousal equivalent, sibling, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law and daughter-in-law.
- in connection with your death, divorce, or other similar circumstance;
- to a trust controlled by you or a trust created for the benefit of a family member (defined above); or
- as part of an offering registered with the SEC.
After 12 months. The selling or transfer is allowed but may still be subject to state or foreign laws. Always consult an attorney before transferring private-company securities.
Because you invested in a privately held company, and its shares are not traded on a public stock exchange, the securities you purchased cannot be easily traded or sold.
As an investor in a private company, you typically receive a return on your investment under the following two scenarios:
- The company is acquired by another company, and you receive your pro-rata share of the distributions that occur.
- The company makes an initial public offering on the NASDAQ, NYSE, or another exchange and goes public, and you can sell your shares on the exchange.
It takes years to build companies, so it can take 5-7 years (or longer) to see a distribution after the company is acquired, or trading after the company goes public.
In many cases, there will not be any return as a result of business failure, so those who cannot afford to lose their entire purchase should not invest in start-ups:
- Investments in private placements–start-up investments in particular–are speculative and involve a high degree of risk.
- Companies seeking startup investments tend to be in earlier stages of development, and their business model, products, and services may not yet be fully developed, operational or tested in the public marketplace.
- There is no guarantee that the stated valuation and other terms are accurate or in agreement with the market or industry valuations.
The most sensible investment strategy for start-up investing may include a balanced portfolio of different start-ups. Start-ups should only be part of your overall investment portfolio.
Investments in startups are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.